Lease with Option to Purchase

You may remember the articles I wrote in the past on Residential Lease Option and Residential Lease Purchase. These were how to articles to give you ideas on how to further your marketing effort of a particular property by opening up more options for you to get into buyers, and not just renters. And often, with these contracts, you will end up getting the house back anyway, as most people with bad credit who are unable to buy (and therefore in the market to do a lease option or lease purchase) will likely still have bad credit at the end of the lease period. But I wanted to go a little further with this post and tell you about a hybrid deal that I just recently completed.

I manage a property for an ex-business partner, who has now moved out of state. We were looking to rent the property, but with the property being a middle income type property, the rent we needed to get was just a little out of range of the typical family that would be interested in such a property. So I marketed the property as a “for rent” or “for sale” property and told perspective clients that I would be interest in a lease option contract. We were not as interested in a lease purchase agreement because we wanted to make sure we got a good chunk of change up front, as it serves to put the buyer into the property, and we expect less damage to the house if someone has some money in it up front (something to lose).

Well, it took two months to find a buyer, but we finally negotiated a deal with a nice couple with one child. The deal was interesting as it had some of the mechanics of both a lease option and a lease purchase agreement. In the end, the details of the deal were as follows:

  • Option fee of $2,750 up front from the buyer
  • $875 per month in rent
  • $50 per month credited to buyer at time of exercising the option to buy
  • 3 year lease agreement
  • Final purchase price of $96,700

So, as you can see, in a typical lease option, you would get the initial option fee, monthly rent, lease term agreement, and a final purchase price. Whereas in a lease purchase, you would get a higher monthly rental fee, with part of it being credited to the buyer’s purchase price, a lease term agreement, and a final purchase price. So the hybrid we did here is creative, and it met both the need of the seller and the buyer.

So this is just one example of how you can use creative finance to more effectively market your real estate holdings. This hybrid lease option / purchase is just one of many ways to open up the available buyers / renters in your area.

4 thoughts on “Lease with Option to Purchase

  1. i have lease to buy option on cuurent home i stay in landlord is filing bankruptcy chp7 what happens to money given and what should i do now

    • Alley:

      The best advice I can give you is to consult a lawyer. Hopefully, the landlord continued the mortgage payments, and didn’t pocket the money.

  2. I have several homes. One in particular, I want to get out from under. However, because of a 2nd I have on the house (used HELOC on it to purchase another home) I now owe more on the house than the market will bare. I have had the same renters in there for a few years.
    Question: can I sell the house on a option for more than the house is worth?
    and if so, on a option, who is responsible for taxes, insurance and repairs? I no longer want the houses responsibilties.

    • Laurie:

      You are free to sell a house for whatever you want! And the responsibilities for taxes, etc. depend on the deal you negotiate with your buyer. I hope this helps.

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