Lease-to-Own & Lease Options
In a lease-to-own or lease option, a tenant rents a property at an above-market rate. Prior to taking possession, the tenant agrees on a potential purchase date and purchase price for the property. The tenant may buy the property at any point during the rental period up until the lease option expires. The lease option period can be any length of time that tenant/buyer and the seller agree to; ranging from several months to several years.
If the tenant does purchase the property, the tenant is credited with the premium portion of their rent. The main reason why a rent-to-own agreement appeals to buyers is a financial one. If buyers don’t yet have the down payment or the monthly income to qualify for a mortgage but believe they will within the next couple of years, a lease option gives them a path to ownership.
CloudWorks does not enter into Lease-to-Own, Lease Options or Second Mortgages for primary residence properties - we see this as a method to enter into a partnership arrangement with commercial tenants and individuals/businesses in the real estate development industry.
Why do we look at these types of partnerships? For quite a few reasons actually.
- Pure development / construction is not our forte. CloudWorks is a hybrid private equity / real estate company; if we can make a decent return without getting too deep into construction, we see it as the best option for us.
- Speed. CloudWorks projects are often backed by investors and as a result we can have a fairly high cost of capital. There are situations where we can move a project close to completion, but it makes sense for us to let others cross the goal line and have them share in the rewards.
- It's not to our tax advantage. Smaller corporations are taxed heavily on rental income from real estate holdings if they are not owner occupied. As a result a property might simply be better off not in our hands from an after-tax income point of view, especially if a business is looking to owner occupy the space we're selling.
- The cash flow allows us to move onto the next project. Once we can get the base investment & interest back to our investors, CloudWorks is happy to hold a longer term investment like a small second mortgage.
- Passing on benefits to smaller investors is part of our corporate culture. The original idea of CloudWorks was to package up smaller investment amounts in a way that would allow 'regular people' to have access to larger deals that they normally wouldn't. If we can partner with other groups in a way where we each get a benefit - we see that as an extension of our original idea and hopefully it'll lead to bigger & better projects.