Lease Purchase

Lease purchase is a creative real estate transaction that is getting more and more popular now. In short it works this way: Seller/landlord leases home to buyer/tenant, at the same time grants the buyer/tenant option to purchase the property at set price within set time frame. Buyer/tenant pays a small amount of option fee in exchange for the option. The option fee will be credited toward the purchase price when tenant/buyer exercises option. Note the most important elements in a lease purchase deal are:

* Buyer/tenant has option, but no obligation to buy

* Time is of essence in lease purchase. Option expires after certain time period.

* Sale price is negotiated upfront in the deal and written in the contract. It does not change anymore unless both parties agree to modify the contract in writing.

* Option fee is applied toward sale price if and only if buyer/tenant exercises option.

* Seller is the owner of property until option is exercised.

Everybody here can see the difference between lease purchase and conventional real estate sale, or conventional lease. Why people favor lease purchase over conventional sale or lease? Is it more favorable to seller or buyer? Below we list the major advantages of lease purchase over conventional lease or sale:

For tenant/buyer:

¨ No credit required for mortgage because you do not need a mortgage for the deal. This is particularly important for those with credit glitches or blemishes.

¨ Little or no down payment required for lease purchase. It allows you to use minimal capital to control a valuable asset. It's a huge leverage with little risk.

¨ Fixed sale price. It is a huge advantage for buyer to have a sale price negotiated upfront, especially in a fast moving real estate market. Everybody knows that in long run real estate price always goes up. Over the option period you may find the house value appreciates tens or even hundreds of thousand dollars. That becomes your instant equity upon purchasing. Even if you do not want to hold the home, you can simply exercise your option and flip the property to other buyer. You can pocket the sale price difference instantly.

¨ Flexibility to acquire a home. You have the option but no obligation to buy. It is a huge advantage for those who worry the real estate market may go down in next few years. You do not have to worry because you can simply walk away and do not exercise your option.

¨ Lease purchase can help you save down payment money toward your home purchase. many landlord/seller offers rent credit toward your sale price. You are saving money when you make monthly rent payment.

¨ Easy sale price negotiation because of no or less than normal realtor commission. Many owner/seller are willing to pass a portion or all 6% commission saving to tenant/buyer for a quick deal.

¨ Proudness of home ownership. You know you have control of the home. Money you spend to upgrade and renovate the home is not wasted because the home is yours to keep once you exercise your option. Any upgrade will improve your life style which you may not afford to do so in a straight lease.

¨ Lease purchase allows you time to rebuild your credit. To pay rent on time helps your credit too. Many owner/seller may even provide help to improve or repair your credit so that you can buy later. Many owner/landlord have business partners in mortgage industry and can refer you a good mortgage broker for low interest rate and easy qualification. In our case I am a licensed loan officer and I can get the best mortgage for you when you are ready.

¨ Lease purchase is a great tax shelter. You do not pay real estate tax for the property you have control with while enjoying appreciation of the property. Owner/seller pays property tax until you exercise your option.

¨ During the lease purchase period, the option fee you paid and the rent credit you have accumulated are not counted as your asset, but you know you will get them when you exercise your option.

¨ Your name will not shown in county record for the property you have control with. This privacy is valuable for legal purpose. If you are sued for financial compensation, no lawyer can take your option fee and rent credit away, nor can they take away your control of the property.

With so many advantages for tenant/buyer, you may wonder why any owner/seller would do lease purchase at all. It is true that in today's market, lease purchase deal is over demanded. More tenants/buyers are seeking lease purchase than supply. However, there are also many valuable advantages for owner/seller. I am listing some of those below:

For owner/seller:

¨ Tenant/buyer in a lease purchase deal tend to take care of property much better than regular tenant. It is easy to understand because the tenant/buyer has intention to buy the home later.

¨ Tenant/buyer is usually responsible for maintenance of property.

¨ Option fee is an upfront payment to owner/seller.

¨ Reduced or no commission is paid when tenant/buyer exercises option. This is a huge saving for owner/seller. Owner/seller may choose to pass a portion or all of the commission saving to buyer for a quick sale.

¨ Easy marketing to sell property with lease purchase. Strong demand for lease purchase even in a slow real estate market.

¨ Owner/seller collects rent while waiting for tenant/buyer to exercise option. Comparing in conventional sale many properties sit vacant in the market for many months before getting sold.

¨ Proud ness to help tenants without perfect credit to realize their dream of home ownership.

¨ Tax benefit. Owner/seller enjoys tax deduction for property tax and mortgage interest payment until tenant/buyer exercises option.

As you can see from above, lease purchase is really a win-win solution if structured properly. No wonder it has become a favorite for both buyers and sellers. It is many people's experience that once you have done one lease purchase deal, you may never want to do a conventional deal again!

However, like any other conventional and creative real estate deals, lease purchase is not without risk. No doubt that the deal is more complicated than a straight lease. All options, obligations and any other terms have to be specifically defined in contract to avoid future legal dispute. A well defined contract is very important to protect your interest in a lease purchase deal. If you want to do a lease purchase deal but not sure how to handle it, contact me and I can help!

Please Click Here to Check homes for rent. Some of them are open for “Lease Purchase”. Please call 214-394-7876 or email Yiqun.Xie@gmail.com for more information.

Lease Purchase

Home Lease Purchase

Contact: Yiqun Xie Tel: (214) 394-7876

Email: Yiqun.Xie@gmail.com Fax: (214) 889-7876