Lease Purchase - Rent to Own

Lease Purchase - Rent to Own

Of all the many ways of selling and buying real estate, lease purchase - rent to own is one of the most creative home finance alternatives if you have bad or no credit. Tenants who want to buy but are not currently in a position to buy use it to lock in a price against future appreciation. It is also a tool used by owners and property managers to attract good tenants. And it is used by owners with property that, for whatever reason, is not renting or selling at the price they want.

Lease purchase - rent to own is exactly what it sounds like – a renting tenant signs an agreement with a landlord stating that the tenant can buy the property at the end of a prearranged time period. The owner is obligated to sell at the option price, but the tenant is not obligated to buy. But when a lease-purchase exercised, the buyer is obligated to purchase at the end of the rental period.

There are pros and cons on both sides – property owners are in a more secure position with a lease with option to buy contract than if they held a mortgage, because they still own the property. Sellers also receive rental income and get income tax deductions. For buyers, the biggest draw is the fact that they get more time to qualify for mortgage financing.

Before entering into such an agreement, a written document must be drawn up which spells out the terms of the contract before tenants move in. Because the tenant and the seller are entering into two separate legal situations – a rental agreement and a contract to purchase – it’s a good idea to get an attorney involved to be sure all bases are covered. But the purchase agreement should state the price and clearly define the terms. It’s not a bad idea to add a condition section that includes a monthly option fee and the portion of rent that will be applied toward the purchase, if the option is exercised.

Down payment: Within your lease agreement, there should be a security deposit required. Since many states do not allow these deposits to surpass one month’s rent, there may be an earnest money deposit requested to be kept in escrow until such time as the option is exercised.

Purchase price: Usually, this is set out in the original lease-purchase agreement – in other words, the purchase price is set according to today’s market, not in the future when the option may be exercised. This is the good news/bad news, depending on whether real estate prices increase or decline during the lease. Another option is the “right of first refusal,” which means that the tenants will have the option to purchase the property at a price determined by the landlord at the time of sale as opposed to the time of the agreement. The tenant may also have the right to purchase the property at the price offered to the landlord by another prospective buyer.



UnLOCKit Realty is here to help you with this process.  See all homes available in Atlanta Georgia and surrounding cities by clicking the link below.  

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