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Lease Purchase or Lease with an Option to Purchase - Which Is Right For You?

By
Real Estate Broker/Owner with KGC Properties LLC, Tucson Property Management & Real Estate

I've written several lease purchase agreements over the years.  Some of them have been successful - but for some, the potential Buyer backed out near the end of the lease terms - terminating the sale of the home.

So it is very important that if you enter into a lease purchase or lease with an option to purchase - whether you are a Seller or Buyer - that you understand the terms and ask for professional guidance.

Here are some basics of each agreement (this is just a generally guideline - more rules and laws apply depending upon the state you live in and your specific agreement.)

Lease with an Option to Purchase is the way to go if you, as the Seller, aren't too concerned about selling the property at the end of the lease.  As a Buyer, if you "might" or "could" or "would" buy the home, but aren't 100% sure you can or want to - this is also the best option for you.  Here are some of the basics:

  • Buyer pays the seller down payment money to to be used for a later purchase of the property. This money may be significant or very little depending upon the Seller. 
  • Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. Although it's negotiable, most buyers want to secure the purchase price from the beginning.
  • The term of the option agreement is negotiable, but the common length is generally from one year. 
  • Down payment money is rarely refundable. 
  • Nobody else can buy the property during the agreement period.
  • If the buyer does not exercise the option and purchase the property at the end of the option, the option expires.
  • The buyer is not obligated to buy the property.

A Lease Purchase is the way to go for many people and is ideal for a Seller who wants to know when their home will sell and for the Buyer who "for sure" wants the home but just needs time to save money and get ready to purchase the home. 

  • Buyer pays the seller security money to purchase the property.
  • Buyer and seller agree on a purchase price.
  • During the term of the agreement, the buyer leases (like paying rent) the property from the seller for a predetermined time.
  • The term of the lease purchase agreement is negotiable, but generally 6 months to a year is common.  
  • The security money generally does not apply toward the down payment.
  • The Buyer and Seller agree on what percentage of the lease/rent money will apply toward the purchase of the home.
  • The security money is generally nonrefundable.  
  • Buyers are often responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.
  • The buyer is obligated to buy the property at the end of the agreement.

Lease options and lease purchase agreements also have different financing documents. The documents and laws regarding these options vary from state to state and it's important to get proper advice before entering into one of these agreements with a seller.

Gabrielle (Kamahele) Rhind - 2009. If you want to reprint parts of this - just email me for my permission rhindohana@msn.com. Buying or selling Tucson Arizona Real Estate? Click info@gabriellerhind.com and let me know how I can help you! Or visit www.BuyMyTucsonHome.com

If you'd like more info about  Mt. Lemmon homes, Tucson bank owned homes, Tucson lease option to purchase homes, Tucson rental homes, buying or seling your Tucson home or the Tucson real estate market or real estate news, email or call me at (520) 245.0242.

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Buying or selling Tucson real estate, Mt Lemmon, Tucson bank-owned homes, Tucson rental homes, or Tucson lease option homes? Visit www.KGCPropertiesLLC.com .

                                                 

 

This blog is written with my opinions and my opinions are  presented with accuracy but not guarantees. Please talk to a professional before making any real estate, financial or agency decisions.    Gabrielle Kamahele Rhind - 2014. If you want to reprint parts of this - just email me for my permission: KGCProperties@gmail.com .

 

Comments (7)

Chip Jefferson
Gibbs Realty and Auction Company - Columbia, SC

Great education for the lease option purchases. Some of these are great options for sellers in a down market or in need of a quick sale.

Jun 22, 2009 12:47 AM
Harry F. D'Elia III
WEDO Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

I love lease options here in Phoenix. I am an expert on them. I have twenty people on my list right now. Best of luck to you!

Jun 22, 2009 01:14 AM
Dan and Amy Schuman
Howard Hanna Real Estate Services - Solon, OH
Luxury Home Specialists

Hi Gabrielle, this is a very important topic considering the large amount of people who require a little bit of creativity in today's market. The lease option route can work but it is important to have professional guidance to navigate you through the process. Very well written post.

Jun 22, 2009 01:36 AM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Great post Gabrielle, as this type of purchase is becoming more popular with credit becoming more difficult to obtain.

Jun 22, 2009 11:18 PM
Matthew Sinkovitz
Keller Williams Realty of Harrisburg East - Harrisburg, PA

Gabrielle,

Thanks for the post.  I have recently run into a situation where a lease option is a possibility and your blog really helped to inform me and clear things up.  Thanks again.

Matt

Jun 23, 2009 03:52 AM
Lori Mode
The Mode Real Estate Group - Elk Grove, CA
Real Estate Made Simple

Gabrielle - great post...I have a seller considering doing lease options on a couple of his single family investment properties currently...how do you charge the commission?

Aug 20, 2009 02:36 AM
David Lee ~ Orange County, Ca ~ Cash Flow Specialist
United Realty - Garden Grove, CA

Gabrielle, awesome post! thanks for the information. it helped me a lot!

Aug 24, 2010 07:46 AM