Lease purchase arrangements - what do you use?

2 Replies

Hi - I'm now considering, instead of selling my flip, to lease purchase to my parents who cannot obtain a conventional loan and love the property we rehabbed. I understand the premise of Lease Purchase, but want to know what types of contract clauses you all prefer or employ. 

The main areas of interest are:

- Must agree on purchase price at current time

- Secondarily, what is "fair" as far as discounting purchase price by expected real estate commissions to sell etc.. I suppose whatever is mutually agreeable.. 

- Down payment amount (they have about 6% available)

- Interest rate (probably want more than market, do you base on risk profile?)

- Length of term (15-30yr... etc) - probably whatever is affordable mutually agreeable

- Calculation of amortization schedule - I think this is standard schedule just like a bank, daily compounded interest accrued and assessed? 

- How does the contract state ownership of repairs and liability of house, insurance is still owner? Which parts of liability is taken on by the Lessee? 

- What happens if they fail to make payments? What are the terms there? 

- Loss of down payment... under what circumstances (eg failure to pay, damage to property etc)?

- How would the Lessee sell the house or exit the Lease purchase before loan payment is up? Do they retain any value, or just walk away?


I know this isn't what you asked, but I wouldn't sell it to your parents. Either give it to them or politely ask them to buy something else. 

What happens when they miss a payment? Thanksgiving dinner will be akwaaaard.

@Leland Smith , my understanding is that the LEASE contract is completely separate to the PURCHASE contract.

ie. TWO documents. In your example, 6% could be a NON-refundable deposit on their Purchase OPTION.

All monthly payments would be LEASE payments only - UNTIL they could Finance the purchase themselves.

Alternatively, if you just wanted to be their BANK, you could just owner-finance, no lease entailed.

Ask yourself: Are you prepared to be heartless if required (like a Bank)?

And/or, will you be happy for THEM to sell it later for a massive profit (instead of you)?

ie. You'd only get paid out at today's agreed price! ie. Where do YOU think values will go for your buy? My 2c...