A Lease Option is a real estate financing and sales tool that allows a tenant to lease a property, for a specified amount of time, generally 12-24 months (the option period). When the tenant signs the Lease Agreement, he/she also signs an Option Agreement and pays a specified amount of money as “Option Consideration.” This agreement gives the Buyer the option to purchase the property at an agreed upon price (option price) at the end of the option period.
Benefits to the Buyer:
- While the Seller is committed to selling you the home you have the option to purchase, should you change your mind, you are not obligated to complete the purchase—you can walk away. You have complete use and control of the property during the Lease-Option Period
- Each month, a portion of your monthly payment goes toward the equity in your new home. When you are renting, you just lose money each month. Leasing with an Option to Buy gives you time to do things to improve your life, such as complete your education, repair your credit or obtain the training you need to get a higher paying job.
- Unlike a traditional home purchase, the down-payment you are required to make is usually a small amount and the Seller is often willing to work with you to create a “win-win” situation for everyone.
Benefits to the Seller:
- During the Lease-Option, the tenant-buyer will usually take very good care of the home.
- There are usually more lease-option Buyers than there are lease-option properties so you have the ability to sell your home faster, even in a slow market.
- You won’t have to come out of your pocket each month with the money to pay the mortgage. In addition, you will receive additional money in the form of rent credits therefore usually creating a cash flow situation for you.
- You receive money up-front in the form of “Option Money.” In the event that the Buyer chooses not to exercise the option, you get to keep both the option money and any money paid toward rent credits.