What is the typical interest charged on a lease option?

5 Replies

When you "rent to own" a property to a renter (future buyer), does the payment include interest? If so, how much is the typical % rate charged on a such a transaction? I ask if there is a ballpark figure that one can use just like hard money usually costs 7% to 12% (give or take). Is there something like that on "lease option" payments?

Also are these fully amortized or interest only with a balloon payment down the line?

Thanks!

You're mixing apple and watermelons....there is no loan, therefore no interest, on a lease with an option.  On an actual owner financed sale, generally varies from 4-10%.

No mortgage, no loan, no interest on rent to own.

Lease to own and rent to own are not the same thing.

on lease plus option, there is market rent plus option fee for option to buy at at price in the future.

On seller financing, a note plus mortgage or note plus deed of trust is used on free and clear houses, Notes generally have interest.

For existing financing, wraparounds, AITDs (all inclusive trust deeds) land contracts all have interest paid.

In Calif,  AITD and contracts for sale are used.

Got it everybody! Thanks for clarifying @Wayne Brooks @Rosston Smith ! Makes sense now. A local agent who is helping me out set this payment structure and included "interest" in there but I wasn't sure what % he used as the numbers didn't make sense.

@Brian Gibbons do any of the market rent gets applied towards the purchase price?

Not sure how this applies in this case but the property is in poor shape. I am 2k away from it therefore I cannot rehab it. The "renter" (buyer) is very interested in living in it while he fixes it. The option to buy is just to be the first to buy it but because the property needs work it's not like people will be lining up to purchase it at least in the shape that it is currently.

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