A lease purchase is a property lease for a fixed period of time, often 12 to 24 months, with an obligation for the tenant to purchase the property at the end of the lease period. A portion of the rent is applied to the future down payment. The purchase price of the property should be specified when signing the lease purchase. A lease purchase differs from a lease option because a lease purchase requires the tenant to purchase the property.
The lease purchase agreement usually restricts the right to transfer or sell the lease purchase to another person. Read the lease purchase agreement carefully to see if there are any restrictions. The ability to transfer or sell the lease purchase can also be negotiated before signing the lease purchase.
A lease purchase 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. The upfront money required to acquire the property on a lease purchase is generally a small amount. It usually consists of the first months rent, a security deposit, and the non refundable fee to purchase the lease purchase.
- Monthly rent credit builds a down payment. The buyer builds a rent credit toward the down payment. Typically, the rent credit is 10% to 20% of the monthly rent.
- 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 may be 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 lease purchase gives the tenant a rent credit toward a down payment.
A lease purchase can be a very complicated process. 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 purchase agreement.