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Lease Purchase or Lease Option?

Tuesday, January 12

Many investors who want to sell a property but prefer to delay the actual closing may choose to offer the property for sale under a “Lease/Purchase” or “Lease/Option” program. Unfortunately, many investors do not understand the differences between the two methods. Lease/Purchase is sometimes referred to as “Rent to Own” and is a billion dollar business in this country. People “Rent to Own” appliances, furniture, automobiles and other items. This industry is popular among moderate income families for several reasons: 1) There is a low initial cost, 2) You don’t have to have “perfect” credit, 3) There are regular payments in a fixed amount and 4) You get immediate usage without while actually paying the full cost of the item.  This concept applies equally as well for housing. For a buyer who cannot currently qualify for a home loan, they have limited choices. They can  spend thousands of dollars per year in rent and have nothing to show for it but the prospects of doing the same thing the next year or they can buy your property under a Lease/Purchase or Lease/Option. But what’s the difference? Lease/Purchase is an actual contract to purchase property (usually a home) at a set price but allows the purchaser to live in the property for months, or even years, while accumulating the required down payment or qualifying for a loan to finalize the purchase. This type of arrangement has benefits for both the seller and the buyer but I will concentrate on advantages to the investor/seller. Potential buyers are much more plentiful. You determine the qualifications of the buyer. You determine the amount of the initial deposit. You determine if the deposit is refunded if the purchase is not culminated. How much, if any, of the monthly payment will be applied to the purchase is your decision. Of course, the terms you choose will effect how easy or difficult it is to locate a tenant/buyer. There are many other less tangible benefits to the investor/seller. Purchasers who cannot otherwise purchase their own home are willing to contract for a larger purchase price. They consider the property as "their house," not some landlord and take much better care of the property, often even adding improvements to "their" house. Collection of monthly payments are easier because the tenant/buyer knows that a late payment could cause them to lose their initial deposit and "extra" amount going toward the purchase as well as "their" house.  

There are no set terms for lease/purchase or lease/option agreements. Most aspects of the contract are negotiable. These include the purchase price and amount of initial deposit, as well as the monthly payment and how it is divided between rent and payment toward purchase. In some states, a tenant/buyer can acquire equitable interest in the property. For this reason, it is important that you have a qualified real estate attorney to review your contracts. 

 

Tagged as: Lease Purchase, Lease Option

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Ron Owens

Owens Professional Services
Real Estate Coach
Norcross, Georgia


Website: http://www.OwensSchoolofRealEstate.com
Phone: 770-326-6622
Fax: 702-974-7680

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