What is a Lease Option?
A lease option is a property lease for a fixed period of time, often 12 to 24 months, with an option for the tenant to purchase the property during the lease period. A portion of the rent is applied to the future down payment if the option is exercised. The purchase price of the property should be specified when signing the lease option. A lease option differs from a lease purchase because a lease purchase requires the tenant to purchase the property. Can a Lease Option Be Transferred or Sold to Another Person?
The lease option agreement usually restricts the right to transfer or sell the lease option to another person. Read the lease option agreement carefully to see if there are any restrictions. The ability to transfer or sell the lease option can also be negotiated before signing the lease option. What are the Benefits of a Lease Option?
A lease option agreement has benefits for both the buyer and seller: - Benefits for a Buyer
- Only a small amount of upfront cash is required as compared to a traditional home purchase. It usually consists of the first months rent, a security deposit, and the non refundable fee to purchase the option.
- The buyer builds a rent credit toward the down payment. Typically, the rent credit is 10% to 20% of the monthly rent.
- The value of the property may increase before you exercise your option, so you may end up getting the property at a discount.
- Benefits for a Seller
- A seller can usually charge tenants a rent that is higher than the market rent.
- The seller can usually get a better price for the property than he could if selling the property in a traditional transaction.
- It¿s easier to sell the property in a slow market. Many prospective buyers who cannot afford a down payment can usually afford the monthly rental payments.
- The tenant is more likely to respect the property and treat it like an owner.
- Most tenants do not exercise the option. When the time comes to purchase under the lease option, many tenants don¿t qualify for a home loan and can¿t come up with a down payment.
Do I Need a Lawyer if I Want to Enter into a Lease Option?
A lease option can be very complicated. An experienced real estate attorney can guide you through the process of buying or selling your home and can help you negotiate favorable terms in the lease option agreement. |
 |
