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Why sell your home on a lease option

With more and more buyers being told no by traditional mortgage lenders, because of lack of down payment or credit history, lease options are becoming a great way to make more from the sale of your home.

The great thing about lease-option is the flexibility of a property owner to sell whether its a house, or a condo. Lease-option could also be use for commercial properties.

Lease-option is a complete opposite of your typical home sale. There are always more lease-option buyers than there are sellers. When you have more buyers it will surely be easier to sell your home. It will be a great benefit to any home seller to have a deeper understanding how lease-option really works.

What is exactly a lease-option?

It's a lease of a house, condo, or even a commercial property, that gives the tenant the option to purchase the property at the end of the lease, at a set price. The buyer puts a certain amount of money down that is credited to the buyer if they exercise the option to purchase, but if they don't exercise the option to purchase they lose that option money.

Lease-option is such a great tool, especially when there are more homes than the amount of buyers looking.

Rent Credit - The Key to Lease-option Success

A rent credit is set when a rental agreement is established between the tenant and the property owner. This credit clearly states how much of the rent is to be applied toward the purchase of the property. For example, let's say the rent is $1,500 per month with a $100 per month credit. After 12 months of rent, the tenant will have built a $1,200 rent credit toward the purchase of the property.

A decent rent credit could be anywhere from 20 - 30 percent and sometimes could be all the way up to 100 percent. A higher rent credit provides better incentives for any prospective buyer.

A clever way to inform your prospective renter about the advantage of lease-option is tell them it is like a "forced savings". They would have built a large down payment when they opted to purchase their rented property.

There are also some tax benefits that property owners could enjoy when it comes to lease-option. Consult your tax advisor to know more of tax strategies using the lease-option.

Todd Clark - broker
Kastings & Associates
Phone: (503)524-9494
Fax: (503)622-8739

Posted by Todd Clark (Broker) (503)524-9494 (Beaverton, Oregon Real Estate Expert) on 09/18/2008 11:13 PM

Comments (13)

Lease Options in the Home Selling Channel

lease options, beaverton oregon, tigard oregon, lease option expert, owner financing, mls, for sale, todd clark, realtor

Originally posted at: Living Beaverton - Your guide to everything Beaverton: Why sell your home on a lease option

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13 Comments on Why sell your home on a lease option

SEP

2008

Make sure to check with your mortgage lender, as well. There are some guidelines that have to be met to use the tax credit!

TC,

I like these lease options, but agents don't seem to know how and when to structure them...They're a nice tool, however, especially in our present market! Thanks, Fran

SEP

2008

Todd - Not being a numbers person I have difficulty recommending this approach although I can see the advantages for sellers who need to move on. Do you have a banker or someone who works out the details or do you work it all out?

Lease purchases are back here as well although not as prevalent as 10-12 years ago. More sellers here need to be bailed out of short sales prior to foreclosure and lease purchases may not cover necessary expenses nor may the bank allow it. Still it is a nice alternative to a straight rental.

Here in my neck of the woods, we are told DO NOT TOUCH A LEASE PURCHASE... I don't know all the whys and wherefors of it but here it is totally discouraged. Again, different states have different rules.

SEP

2008

I have actually heard the same thing that Gail has about them. Maybe it is a "Texas thing". But I do think that you have the right mindset. In this current market that we need to be creative in how we sell houses and a lease option is one possible way to accomplish that.

Thanks for posting this Todd. I have lots of people asking me about lease options lately. Are you doing any? It seems tricky if you are representing the buyer/lesee

SEP

2008

Sue - True, but usually those are nothing big.

Fran - You are so right, most agents don't know how to do them and it amazes me how many agents that don't know how to do them try them anyway.

Judy - I usually work it all including setting up the escrow account for the monthly payment collection.

Samantha - You would be surprised how many banks are allowing it now rather than losing money in short sale as long as the down payment brings the home current.

Gail - For some reason Texas does not allow owner financing either and I do have to wonder if some bank got their hands on a lawmaker, because they are such a big money maker for sellers and a great opportunity for buyers.

Steve - Texas is the only state that doesn't allow lease options or owner financing and I think it really is just a Texas thing!

Cristal - I'm doing a lot of them, I would say about 60% of my listings and about 80% of my buyers are either lease option or owner financing right now. I've been doing them for just over 3 years now, I started doing this when the market was hot, knowing that it couldn't last!

SEP

2008

I have been told by my title attorney that he has done more lease options the past two months with me than he has ever done in the past five years. They do help the Seller temporarily and hopefully gives the Buyer a chance to re-build their cash/solvency to buy witihin a year to fifteen months. The main thing that concerns me is first, we do not know what the future will bring given the mess our banks have created. Secondly, the property may not appraise at the time the option is exercised and then if the buyer can not purchase and decides to move....then where does that leave the Realtors and Sellers? We may be trying to sell in an even more depressed market.

I will choose to remain optimistic though....We all need to learn to follow the market but not let it dictate to us or the consumer how we need to feel. I believe as Realtors we can be an example to the marketplace and re-instill faith back to our industry. Afterall, the Buyers are looking to us for our expertise in these unknown times.

Angela - I've been doing them for three years now as well as owner financing and I can tell you my calls have increase from both buyers and sellers on the topic in the last year. It really is a risk for both parties, because if the house goes down in value the buyer doesn't want the property and the seller now has to sell it for less than he would have originally.

OCT

2008

If the property doesn't appraise due to depreciation the contract is void. Contract should have clause protecting seller from any market changes. I offer my tenant buyers a price protection plan that will credit all of their option consideration money towards the purchase of another of the properties I manage. I have seen some contracts indicate that if the house will not appraise due to depreciation that there will be a new fair price agreed upon by the seller and buyer. This will probably not work.

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