Lease with Option to Purchase

8 Replies

We have a lovely lake property in northern Wisconsin, but have found that we no longer use it as a 2nd home as we once did. The vacation home market is a little tricky. We have tried selling it in parcels, selling it as a whole, renting it full time, renting it on a monthly basis, renting it on a weekly basis. For a variety of reasons, none of these has worked well. We are thinking of doing a lease with option to purchase in a fair manner, but would need help in structuring it to make sure it is compliant with all regulations and gives us and the other party a fair deal. We have used attorneys in our area, but none that specialize in this type of lease. Any suggestions?

@Lisa Woods some agents may not know this but we have literally a State Form called WB-24 Option To Purchase; any real estate agent can fill it out. Second document you need is a lease. I would recommend Wisconsin Legal Blank. You can order online and they are excellent documents widely used in Wisconsin.

Thanks for all of your responses.  We need to get thinking about this shortly.  I think the biggest issue in moving forward is that we are emotionally attached to the property, which makes decision-making more difficult on this one. 

Lisa, why not sign a master lease agreement? Don t sell just lease to someone who will  use as a Short Term Vacation Rental. In terms of lease you may stipulate a contingency whereby you get the right to use property for X days per year.

@Lisa Woods There are 4 elements(Most important I feel) to a lease option deal.  1. Term-How long will the agreement be extended? You can set the option to be on or before a specific date(ex. 7/28/2023, create an extension clause etc... 2. Non-Refundable deposit.  I typically do $3-$5K however the price point on my properties are $30K-$80K. 10-15% or the purchase price is a fair marker. 3. Monthly payment - In my deals this includes a $75 escrow amount that I tuck away for tenant buyers down payment in the future.  It's only usable and returnable if tenant buyer executes the option.  Otherwise he/she loses it. Included in the monthly payment is the "monthly rent" because if tenant buyer does not execute the option then they default to a simple tenant and may choose to continue residing at the property or leave.  The leases are for the entire term of the agreement and default to MTM, unless otherwise specified in the original agreement and or agreed upon at the end of the option period. 4. The future sales price.  I have a 3 year, 5 year and 3 Sever year options with tenant buyers right now and the longer the term determines the higher the future purchase price will be as I escrow a set dollar amount each month.  The highest I've done was 22%.  

There are some other important factors such as how capital expenses are handled and in this case I create a "deductible" for the tenant buyer.  For example if the roof collapses and cost $8K to fix(Tear off/replace) the tenant buyer pays the first $2,500 and I pay the rest.  At the end of the day you want to make sure your investment is protected.  However tenant is responsible for all routine maintenance & utilities.  All the best to you.  Always remember to persist and you will WIN!!!!

@Shawn Ackerman

That's a lot of info.  Thanks!  There are certainly a lot of elements to consider here.  That's why I want to think this through carefully.  

I really appreciate this forum.  Such a wealth of knoeledge.