Lease Option / Rent To Own

Using a lease option or rent to own type of sales strategy is a very creative way of selling your home in a down market or when lending guidelines have tightened.  A seller can typically get a higher asking price while avoiding the disadvantages of being a landlord.

There are many names you may have heard that have the same general concept:  Rent To Own, Lease To Own, Rent To Buy, Lease To Buy, Lease Option, Lease Purchase and more…

Essentially, the seller is leasing the home while giving the buyer the “option” to buy the home at a future date for an already agreed-upon sales price.  Meanwhile, the buyer is responsible for all maintenance and repairs.

The advantages of this type of transaction are…

  • The seller can ask for a 3 – 5% option payment up front that will be applied to the buyers down payment if they decide to exercise their option to buy.  It is typically non-refundable if they choose not to buy.
  • The seller can charge a higher premium on the rent and use that premium to apply to the buyers down payment as “purchase credits”.  If the buyer choose not to exercise their option to buy, these purchase credits are non-refundable.   For example, a rent of $1200/mth could turn into $1350/mth.  The buyer would then receive a monthly $150 purchase credit that would be applied to their down payment at the time of their refinance.
  • Higher asking price
  • No closing costs
  • Simpler eviction process if buyer stops making rent payments
  • Faster home sale
  • Could help improve sellers credit
  • Typically low or no real estate commissions

The main disadvantage to this type of transaction is…

  • If the buyer stops making payments, the seller will get the house back.
  • These are complicated transactions and in some states there are very strict laws regarding how these transactions can be structured.  If not structured correctly, the consequences to the seller are severe.