Lease Option

By
Mortgage and Lending with Samaritan Partners

Lease with option to purchase, in short, is termed as lease option or lease purchase. For residential real estate, it is a contract between the lessee and the lessor. During the term of the contract, the lessee or the tenant has to pay rent to the lessor or the landlord, so that the lessee would be able to live or use the residential property as his or her home. After the term of the contract, the tenant or the lessee has the option to buy the residential property from the landlord or the lessor. Usually, those who wanted to to have a residential property, but, could not afford to buy one outright or have a poor credit history, are those who choose the lease with option to purchase or lease option. There are many benefits for landlord or investors when it comes to lease option:

* For landlord or investors, the rental that he or she will receive from the tenant will be more upfront, since, the tenants are more than willing to pay greater upfront money because their upfront payment will be viewed as or similar to a down payment in an outright purchased of a property.

* Another benefit for a landlord or an investor is higher rent. Tenants are more than willing to pay higher rents to the landlord since there are few landlords or investor that opts for lease option agreement.

* Higher sales price is also another benefit for the landlord or investor. Most tenants in a lease option agreement is already thankful that somebody is willing to sell them a residential property through a lease option, and so, they are more than willing to pay higher sales price to the landlord or investor.

* In a common or typical rental agreement, the landlord is the one who assumes the maintenance cost of the property. Most of the time, the maintenance cost becomes a problem for the landlord in a typical setting. In a lease option setting, it is an unsaid agreement that the tenants have to take care of the residential property, especially on the repairs and maintenance of the property since it will be their house in the future.

* In a lease option agreement, better tenants are attracted. All tenants who still rent a house or an apartment, dream of owning their own residential property, but, due to reasons like having a poor credit, they could not own one yet. In lease option agreement those tenants have a chance in owning a residential property, and so, there are more tenants that would want to enter into a lease option agreement.

* Another benefit of a lease option is that the landlord does not have to totally renovate the residential property. Although, necessary preparations of the residential property is still taken cared of by the landlord, the tenants understand that they are buying a residential property in its' actual condition.

* When the property has been sold, the landlord's responsibilities are lessened, he or she only has to make sure that the monthly payments are paid and received on time.

Comments (4)

Denise OnullDell
Santa Clarita Mobile Notary - Santa Clarita, CA
Mobile Notary Public/Real Estate Agent

Hi Urle,

I am considering doing a lease option with a current tenant who is renting a condo from me.  The question I would have is the part about "it is an unsaid agreement that the tenants have to take care of the residential property, especially on the repairs and maintenance"  I would think that would be made part of the lease option agreement.

Thanks for your post.

May 13, 2008 07:15 PM
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Doing a purchase with a lease option may or may not be done, depending on that individual state's policies.  Some states have forms made specifically for that purpose, others do not.  Remember that if your state does NOT have a form addressing that, and you modify an approved residential sales contract to make it into a lease/option... you should check with your broker first to make sure your are following your state's Department of Real Estate guidelines.  For example... doing what I have described above in Texas... is not allowed.

May 13, 2008 08:15 PM
Denise OnullDell
Santa Clarita Mobile Notary - Santa Clarita, CA
Mobile Notary Public/Real Estate Agent

Thanks Karen!  I will check that out. ~ Denise

May 13, 2008 08:17 PM
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Denise:  I am always glad to help.  If I can ever be of assistance, please do not hesitate to email me.  Take care...

May 13, 2008 08:50 PM