How many Lease Options get Exercised?

Question

I am looking for some stats to back up the answer to my question.  I am putting together investment proposals and I have heard that around 2/3's of lease option contracts never get exercised.

If anyone can help me find stats to back that up I would really appreciate it.

Thank you

Tracy Venezia-Royce · Answer

Anthony I worked Property Management for awhile for private investors; I'd say less than 1/3 will ever truly take your offer for them to purchase the house back. 
The portfolio I dealt with was always mid price range, bread and butter homes.

I would say make it so that within the contract they have every availability to do so, but even with that (again, in my experience,) most will not do what they need to do to get qualified, or will decide they will not buy THAT house after all.

Hope this helps -

Harrison Painter · Answer

1/3 is a fair number for a rule of thumb.

It is going to be interesting to see how the economic downturn plays into this business model.

Mike C · Answer

Anthony,
            
            There have been a few threads about this. Here is my short answer. It is pretty variable depending on many factors including your market niche, how you screen tenant-buyers, your area, etc. For instance, the lower the home value you specialize in, generally speaking, the lower your conversion rate will be. Why? Someone buying a 50k house obviously doesnâ€™t make what many would consider a great living. They are more susceptible to being in much more trouble if they are laid off, or the car breaks down or they get sick, etc. They live closer to the financial redline so to speak. By the same token, someone buying a 200k house obviously makes way more money, is generally more stable and could afford a major repair on the car or a health issue without essentially having to decide what bills to pay and which ones to let go, at least temporarily.
            
            We havenâ€™t even discussed how much control you have when you put someone in. Do you take the first person with a pulse and some money down? Do you screen them with a mortgage broker so you know whether they will have a chance to qualify during your lease term? Do you not screen them at all (yes some do that)? As you can see, you have some control over your conversion ratio. 
            
            For some numbers to give you an idea, I operate in the 150-250k market for the most part. My exercise percentage is a bit over 50%, but fluctuates some. I also screen thoroughly and would not put someone in who cannot ever get a loan (according to my broker). There will be more fluctuation over the next few years as the banking system backs off their typical over reaction to current events. I think some others have said the lower market homes fluctuate from 10-30% that exercise. Remember, some things happen. People change their mind, get divorced, lose their job, get transferred or just want to move somewhere new. They donâ€™t exercise for many of the same reasons we bought the home from the original seller in the first place.  
            
            All you can do is decide how you want to run your business and screen tenants to meet your goals. What is acceptable to you may be different than me or someone else. That is ok. It is your business.
            
            Good luck
            
            Mike C