Lease with Option to Purchase

Rent to Own

Here at Tri Cities Homes For Sale we can help you navigate the waters of owner financing including the lease option agreement and give you sound advice on whether or not owner financing is right for you.

Lease with Option to Purchase, or rent to own agreements, lease to purchase option, lease option, or lease-to-own, is another type of owner financing that all means close to the same thing.

With a lease with option to purchase you have two different agreements as Lease and an Option to Purchase (often wrapped up in a single lease option contract – however many, including me, believe that having two separate contracts is best). The Lease and the Option are for the same amount of time – often between two and five years. This gives the buyer an exclusive right to purchase at a set price for a set number of years in exchange for an upfront non-refundable payment called the Option Consideration.

The Lease with Option or Rent to Own agreement has a number of benefits or pros and cons.

The Pros include:

Higher Selling Price – often you can ask a little more or get closer to your asking price when offering this form of owner financing.

Quicker Selling Time – There are a lot of good buyers who do not have the stellar credit or perfect work history that is required to get a loan now.

Quick Closing Time and no upfront closing fees – often you can have a lease option completed in a matter of days even if you do a full background check or credit check.

Profit Each Month – in this economy rental rates will often exceed your mortgage by a few hundred each month. This means that you could make a little extra each month over the life of the lease.

Better than just renting – often lease option tenants will take better care of the place because they will treat it like their own home. With renting you only get a small deposit which by law must be returned at the end of the lease – with a lease option you can get thousands in Option Consideration which is never returned to the buyer, even if they choose not to buy the home.

The Cons Include:

Option means option. They have an option to purchase not an obligation to purchase – they can choose not to exercise the option and walk away from the deal leaving the option consideration and home behind with you the seller. If home values drop you could have a home that is now worth much less and if the tenants don’t treat the home right you could have a home that is in need of a lot of repairs. (of course this could happen with any renters).

If the tenant quits paying on the lease you may have to evict to get them to leave which could take a few months and cost a little money.

Of course if the home goes up in value and the buyers choose not to exercise their option to purchase it is probably good for you – but if they do choose to purchase the home it can be hard seeing the built up equity during the lease time pass to the buyers without any benefit to you.