Lease Purchase Agreements

organic_rosefaerieMay 29, 2010

Hi-

I was wondering if anyone here as ever used a lease/purchase agreement to either buy or sell a house? Is it a good idea? Who benefits, buyer or seller?

Also, who would draw up/review the agreement? An attorney?

TIA!

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investorbrian

They CAN be a good idea, but like anything else should be used appropriately. Ideally, both parties benefit, the seller/landlord by selling their house (often without a real estate agent's fee - nice perk) at a price they're comfortable with, the buyer/tenant by being able to work their way towards home ownership even if they're not quite ready yet.
I would only use a lease purchase agreement if you're OK with the fact that the tenants may not end up buying the property. If you have to sell the property by, say, the end of the year, then don't use a lease purchase agreement.
Two final thoughts:
1. Screen the tenants/buyers VERY carefully.
2. Tenants who intend to buy feel much more invested in the rental property, and will therefore treat it better and be less likely to vacate on a whim.
Best of luck with your property,
Brian

Here is a link that might be useful: Lease Purchase Agreement

    Bookmark   May 30, 2010 at 1:04PM
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brickeyee

I sold a renovated house on a lease with option to purchase and would do it again.

The renter pays a non-refundable fee for the option to purchase at a price set when the contract is signed.

You get full market rent and sometimes a little more if you give a credit back to the buyer towards the purchase.

The higher the initial option price and the more of a credit that is given makes the person take very good care of the property and gives an incentive to exercise the purchase option before it expires.

The down side for a seller is that they will not gain any appreciation above the option price.

My lease to own person had been through as divorce (no children involved) and needed to start over from scratch.
He had excellent credit and income, just not enough cash.

He exercised the option 10 months into the 12 month option period.

I had spent more than anticipated on renovation and had been leasing the house for about 2 years before the final lease with option to purchase was signed.

    Bookmark   May 30, 2010 at 4:26PM
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lazy_gardens

Screen the SELLER very carefully too.

A local property owner was in the practice of offering lease/purchase for reasonable priced property at a premium rent, with the excess rent going towards the down payment. If the tenant didn't qualify for the loan at the end of the lease, they lost the excess.

Her scam was that she made sure to pick tenants that had almost no chance of getting a loan, so she effectively was getting way above-market rents, over and over.

    Bookmark   May 30, 2010 at 5:13PM
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organic_rosefaerie

Thanks for your comments!!

Brickeyee, who wrote the contract between you and the renter/purchaser? I am not sure an agent is the right person to ask.
Thanks!

    Bookmark   May 30, 2010 at 6:16PM
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patser

As a tenant/buyer, I had my lawyer write the contract. He structured it in such a way that many of the costs of buying typically paid by the buyer were made the obligation of the seller. She and her lawyer didn't read the contract closely and at the closing, we were smiling some pretty awesome grins...and I walked away with more money in my pocket.

    Bookmark   May 30, 2010 at 7:47PM
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lazy_gardens

Patser - ROFL!

The scammish seller I knew of got blind-sided by a couple of tenants who had low incomes BUT who had some source of cash for the down payment to get the loans into their range.

She lost two really prime houses in one year for under market value :)

    Bookmark   May 31, 2010 at 1:37PM
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brickeyee

I had my attorney write up the option contract.' They do need to be carefully structured to not run onto any problems down the road but a decent RE attorney should be able to create the contract easily.

    Bookmark   May 31, 2010 at 7:41PM
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