How to do a lease purchase for fun and profit

By
Real Estate Agent with RE/MAX Shoreline New Hampshire & Maine

* UPDATE * 02/25/2009: I just came from the closing of a lease purchase I put some buyers in last June.

Their house in Florida remains for sale but they got a couple of raises and were able to qualify for a new loan here. I have another scheduled to close this April; I'll follow up here with that sale too.

This is what a lease purchase is all about; putting buyers in a house now they will buy a few months or year down the road.

 

If you have a listing or own a house you can't sell right away, a lease purchase is another option to consider.

I personally have done several lease purchases over the past few years both with my listings and with investment properties I've owned.

I currently have two lease purchases going on; one is set to close next Wednesday, my sale and my listing; and the second is going to close this coming April.

A true, well structured lease purchase is a good deal for both buyer/lessee and owner/lessor.

First of all you need some paperwork. For a lease purchase I use and highly recommend three separate documents.

  1. A sales contract spelling out exactly the terms of the purchase; this can be similar to a regular sales contract.
  2. 2. A lease agreement spelling out exactly the terms of the lease while the lessee/buyers are living in the property prior to purchasing it.
  3. A tenant information form with some information to allow you to positively identify your tenant/lessee, i.e. drivers license numbers, social security numbers, and a statement authorizing you to verify all the information AND obtain a consumer credit report.

If your state or local association does not provide any forms for lease purchase you need to consult with a qualified attorney to have them drafted. DO NOT write your own for a seller client; you (as a Realtor) are not permitted to practice law.

Your purchase and sales agreement for the lease purchase needs to spell out:

  • This is a lease purchase
  • Purchase price
  • What's included
  • Any closing costs to be paid by seller/lessor
  • Earnest money, who holds it
  • Inspections. These need to be completed and signed off on by everyone before the buyer/lessee moves in.
  • I think it's a good idea to give your buyer/lessee a home warranty beginning on the date of occupancy and make them responsible for repairs, upkeep, and maintenance.

Your lease agreement needs to spell out:

  • Property, what's included, i.e. blinds, fireplace logs, etc.
  • Lease terms, how much a month, does any apply towards purchase price.
  • Security deposits if any. I usually make this part of the non-refundable down payment.
  • Repairs and maintenance. My buyer/lessee does this after they move in.
  • Insurance, they need a renter's policy since they can't legally get a homeowner's policy yet.
  • Number of people that live there and their identity.
  • What constitutes default on the lease
  • And any other clauses or information your attorney may advise you to include

The Tenant information form needs to include at minimum: 

  • Personal data, name, ss #, driver's license #, occupation(s), employer, references, and credit references.
  • A few simple questions like have you ever filed bankruptcy, been evicted, willfully refused to pay rent, etc.
  • And the following statement: "I declare the the foregoing information is truc and correct, authorize it's verification, and the obtaining of a consumer credit report. I agree that the Landlord may terminate any agreemtn entered into inreliance on any misstatements above."

A lease purchase, like a sale, does not always work out for whatever reason, but if you do some advance preparation, qualify your buyer/lessee carefully, and make sure both parties actually want it to work out your chances of success (and getting paid) go way up.

** NOTE TO TENNESSEE REALTORS ** TAR makes all the necessary forms available on the TAR website, you need forms F 57,58, & 59

Consumers can search for Knoxville, Tennessee area lease purchase opportunities at KnoxvilleHomeCenter.com

Posted by

Jim Lee , REALTOR®, Certified Residential Specialist (CRS)

http://JimLee.com  RE/MAX Shoreline

100 Market St., Suite #200, , Portsmouth, NH 03801 Phone: (603) 431-1111 x3801

Visit New Hampshire Maine Real Estate.com to search homes, get Seacoast area information, and find out how great living on the New Hampshire and southern Maine Seacoast really is.

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Diane Daley 02/21/2009 03:44 AM
Topic:
Real Estate Sales and Marketing
Location:
Tennessee Knox County Knoxville Powell
Tags:
lease purchase

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Rainer
20,242
Eric McGowan
Moody, AL

Jim, how timely. I have a friend, now deceased, whose parents need to try a lease purchase deal for the home left here. They had inquired with me about refinancing but it does not make sense. They are in Virginia and the home needing to be lease purchased out is here in Alabama.

Feb 21, 2009 03:03 AM #1
Rainer
229,238
Ryan Shaughnessy
PREA Signature Realty - www.preasignaturerealty.com - Saint Louis, MO
Broker/Attorney - Your Lafayette Square Real Estate Partner

Great idea - lease purchases and lease options are just another set of tools to use in this market.  However, depending on the house and its value, I would strongly suggest pulling credit and doing background searches or, in the alternative, requiring a preapproval letter.  It isn't just about asking the questions - it is about verifying the information.  It is amazing what people will omit on tenant applications.

Feb 21, 2009 03:26 AM #2
Rainmaker
600,597
Jim Lee
RE/MAX Shoreline - Portsmouth, NH
Portsmouth NH Realtor, Portsmouth, NH

Thanks Eric, I hope your friend's parents get their extra house sold.

Ryan I think it's important to get credit and background information on any potential lessee/buyer no matter what house or it's value.

Unfortunately a lot of people that need to do a lease purchase can't get a preapproval letter because they can't qualify right now for whatever reason(s). A lease purchase will also them time to get any issues to getting a new loan resolved while they're living in the property they want to buy.

Most lenders will treat a lease purchase buyer/lessee a little more kindly when they apply for a new loan and can demonstrate they ahve made all their lease payments on time.

Feb 21, 2009 03:38 AM #3
Rainmaker
681,395
Diane Daley
Caron's Gateway Real Estate - Northumberland, NH

Thanks for the details in this post. We have not done any as of yet but have been talking with a few sellers about this option...  Thanks

Feb 21, 2009 03:43 AM #4
Rainer
59,603
Krista Fuchs
Prudential Fox & Roach - Exton, PA
Chester County Realtor - (484) 459-8025 - Home Buying and Selling

Great post!  I've wanted to do a couple of these but no one could lead me.  This is a great place to start, thanks!  Bookmarked!

 

Feb 21, 2009 12:30 PM #5
Rainmaker
1,061,614
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Great article on the lease to purchase option Jim. Great to hear you are making this work for you.

Feb 22, 2009 09:54 AM #6
Anonymous
Dean Curtis

Jim - FYI, I followed the link from Real Talk. You have provided a good roadmap to follow when working a lease option sale.

I like the idea of a non-refundable deposit. It would seem to give some motivation to the buyer to follow through on their purchase. Several of the lease to own arrangements I have watched have ended with the buyer walking away without completing the purchase leaving the seller with a mess on their hands, literally.

I currently have two active, one of which the seller is likely going into foreclosure, I don't know where that is going to leave the buyer. They are pretty upset with the thought of their "down payment nest-egg" they have been paying into for 9 months going up in smoke. The other is 6 months from closing and may be heading a similar direction. Dean

Feb 22, 2009 04:13 PM #7
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Rainmaker
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Jim Lee

Portsmouth NH Realtor, Portsmouth, NH
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