Special offer

Is a lease purchase a viable solution to buying property?

Real Estate Agent with Group DiNenna/Southern Lifestyle Properties

During a recent brainstorming session at the office, we stumbled across what (may) be an extremely good idea. Lease purchases. Say those two words to the average real estate agent, and they'll be running for the hills in the blink of an eye. Scary! As real estate agents, it is our duty to provide the best assistance possible to each and every client.

Why do we hate lease purchases? Well, let's take a look at a few "facts" surrounding lease purchases.


"Fact" #1 As a real estate agent, I will never make any money off of lease purchases. It's a waste of time.

Hmmm...that's not quite true. Sure, you won't make any commission if you don't handle the transaction properly (or if you run away), but there are money-making opportunities available. If you find the potential buyer/tenant, as well as an acceptable property, why shouldn't you get paid? Provided you figure out the terms before showing any property, of course. Have the tenant direct the payment towards your realty firm, which you in turn send to the current owner. Take a commission! Long-term property management commissions tend to run in the 5-15% range (in the Hilton Head Island, SC area)...talk about generating relatively passive income! Then, when the property sells, you still collect the real estate commission you had previously agreed upon. Make sense, doesn't it?

"Fact" #2 Too many landlords are heading into foreclosure...it's not worth the risk.

Yes, foreclosures are running rampant across the country. To avoid any potential issues, require the seller provide you access to his/her mortgage account. Your office can check up once a month and make sure the payments are being received. Hold the buyer/tenant's deposit and downpayment income in your escrow or trust account....no the seller's! Problem solved. If the seller defaults, the additional funds from the lease purchase agreement can be returned to the buyer. They'll be out the rental payments....but hey, would they have been able to buy a house otherwise?

"Fact" #3 The odds of closing a lease purchase are horrible.

Kind of true. In the past, lease purchases have been seen as a way to make some evtra money. I have heard investors who utilize the lease purchase programs state their default rate is as high as 90%. Wow! Keep in mind, in the past, a lease purchase has always been treated a nothing more than a glorified lease. Not exactly encouraging the tenants to act as owners, are we? By establishing the lease purchase through a reputable realty firm, you are helping to create a more structured environment. The tenant/buyer has someone to answer to...not just a landlord.


What do you think? It seems to me that this may be the wave of the future for real estate, with so many potential buyers having credit dings and difficulty qualifiying for traditional loans. We'll see. I, for one, am jumping in with both feet...lease purchases here I come!

Looking forward to hearing any thoughts/comments!



Sarah Rummage
Benchmark Realty LLC, Nashville TN 615.516.5233 - Nashville, TN
Love Being RealtorĀ® in the Nashville TN Area!

We don't have a state approved form anymore for lease purchases. We have to get an attorney to tailor the agreement to the particular situation.  I guess it can be tricky.


Sep 27, 2010 08:00 AM
Ashley Trexler
Group DiNenna/Southern Lifestyle Properties - Hilton Head Island, SC

I know what you mean. We had our attorneys create an agreement for us, which does the trick legally. However, the lenders seem a bit confused by the process - in particular, how can the additional funds collected for the deposit be accepted as rent during the term of the lease. One lender stated the total amount paid by the buyer must remain equal to or less than the market rental rate for the property...


Thoughts from anyone - lenders in particular?

Sep 28, 2010 03:04 AM