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.
Another name you may have heard that have the same general concept: Rent To Own, Lease To Own, Rent To Buy, Lease To Buy, Lease Option, and Lease Purchase.
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. The deposit is consequently 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 chooses 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. As a result, the buyer then receives $150 monthly credit that will be applied to the 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.
Almost all states have strict laws dictating how the transaction can be structured. If not structured correctly, the consequences to the seller are severe.
Markette Properties can assist you in a lease option or rent to own option.