Lease purchase vs. Lease option

3 Replies

@Scott N.

That depends on your goals or your exit strategy. A lease purchase means that you will purchase the property, not just have an option with the opportunity to back out. Are you using this method for yourself as the seller or buyer? Are you the middle-man? All of these questions and more need to be accessed.

I did a lease purchase agreement on a duplex that had tenants already. So at the end of the specific turn I would have to have my financing and everything ready in order to purchase.

Tyrus is correct in that the L/P may be a requirement to purchase, the option is just that. Not really and real difference unless the L/P has a default provision with damages and that probably isn't done except in unique situations, and no, don't go there as some strategy, damages may be applicable in commercial transactions.

Actually, neither one is best as each may be unique.

An option doesn't tie up a property as it can be sold subject to that option. The L/P may constitute a sale and lock the property.

In most cases these are not the best approach to take, especially for a term of more than two years.

The popularity of these is anchored in several matters with issues. One, they may be predatory by the seller. Another issue is a tenant is still restricted to the use of property, making improvements and other aspects that require an owner to perform, like in contracting and obtaining building permits. Residential leases, maintenance is an owner responsibility. They are financing contracts subject to financing rules and laws. They can present financing issues when credits are allowed improperly as to what lenders allow.

They are easily understood but often spin off types cause them not to be a true option or they may present unwanted consequences such as having to foreclose.

A better alternative usually is buying Sub-to, wrapping a mortgage or using a note and deed of trust/mortgage. Much cleaner.

Updated almost 7 years ago

No longer than 3 years, unless a commercial property, 2 years should be sufficient but you can go to 3, a longer lease becomes an issue with the due on sale provisions. :)

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