A lease option basically means that you are renting a property with the option to buy it at a later date. Back in the late 70s and early 80s the lease-option was a fairly popular financing instrument. When the housing market is slow, it's something that can benefit and buyer and seller. Now that we are in a downturn, this option might become popular again.
Lease-options are state-specific so always check with your real estate attorney first. There are actually several different types of options: 1) Lease Option or 2) Lease Purchase. These instruments vary in the specifics and many points are completely negotiable, but the basics are as follows:
- The buyer pays the seller an agreed upon amount (option) to purchase the property at a later date.
- In a lease option, the buyer is not obligated to buy the property but is with the lease purchase.
- A purchase price is agreed upon, either when the lease is signed or when the lease is up.
- During the term of the option, the buyer pays a predetermined rental amount that is higher than normal (the idea is that the excess amount would go toward the price.)
- The amount of money that goes toward the purchase price is negotiable (see above point.)
- Option money is rarely (usually never) refundable.
- Taxes and repairs must also be considered
How do these options benefit you as a buyer or seller? For buyers, it allows time to get financing while paying rent and knowing that some amount will go toward the purchase price. For sellers, the benefits are many: works well in a slow market; gives the seller a monthly income that would generally be larger than a normal lease; will get some up-front money and are protected if the buyer doesn't purchase because the money is not refundable.
When considering these options remember that:
No two deals are alike
Everything is negotiable
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