| A lease agreement with an Option to Buy (or | | | | Because of the declining housing market, prices have |
| Purchase) has the potential to be a terrific | | | | dropped and owners know they cannot get fair |
| arrangement for both the landlord and tenant. | | | | market value for their homes. So, to compensate, they |
| However, like any legal negotiation, you want to make | | | | try to 'beef up' rents by offering tenants the |
| sure as the landlord that you arrange the agreement | | | | opportunity to buy. |
| to work to your benefit. | | | | Advantages for the Landlord: |
| A Lease Option Agreement (also known as a | | | | 1. A lot of tenants will start out an agreement like this |
| Rent-to-Own Agreement) is simply an agreement | | | | with the honest intention of purchasing your home |
| stating that the tenant has the right to purchase the | | | | sometime down the road, but the fact is a lot of them |
| landlord's property at a future date. | | | | won't be able to get financing. The extra money you |
| Usually, this type of agreement is drawn up so that the | | | | collected above their rent remains yours. |
| option is exclusive to the tenant. Legally, options are | | | | 2. Another advantage is the difference in perspective |
| assignable, which means that the tenant can sell or | | | | a tenant who is simply renting has versus one who |
| give their option (to purchase) to someone else if there | | | | intends to eventually own the place they are staying. A |
| is no specific wording in the agreement stating | | | | tenant that is intending on living in his rental typically |
| otherwise. As a landlord, you should know this type of | | | | takes better care of the property, pays their rent on |
| agreement doesn't obligate the tenant to buy the | | | | time and will often times even make improvements, |
| property. The tenant is given the "option" to purchase | | | | thus increasing the value of the property. |
| the property if they choose to do so. | | | | Disadvantages for the Landlord: |
| This type of Lease Option can be set up so that it | | | | 1. If you need to sell the property by a certain time, |
| starts and ends at a certain time during the life of the | | | | there is no guarantee that they will happen. If, for |
| lease. Or it can be set up so that the Option to | | | | example, the tenant turns out to not qualify for the sale |
| Purchase expires when the lease expires. | | | | of the home for any reason, your property remains |
| Another great advantage is that both sides can | | | | unsold and in your hands. |
| negotiate the pricing structure to make it a win-win. | | | | 2. Also bear in mind that your tenant is agreeing to buy |
| For example: | | | | in the future. The real estate market right now is |
| Your lease agreement could be set up so that if they | | | | volatile in terms of both interest rates and housing |
| bought the home in the first year of the lease, the | | | | prices. What appears to be a good price now, may |
| price is $200,000, but if they waited until the second | | | | seem unfair a year or two from now. The tenant may |
| year of the lease, the price would be $210,000. | | | | want to renegotiate or decide not to purchase just due |
| An alternative method is to set up the lease to have a | | | | to the price. |
| market analysis done at the time the tenant would like | | | | Advice: |
| to execute his Option to Purchase. | | | | Because this is a legal arrangement, it is usually |
| Most of the time, with a Lease Option Agreement, the | | | | beneficial to consult with an attorney to make sure |
| tenant generally pays a slightly higher than market | | | | you understand exactly what you are getting in to. |
| value for rent. A percentage (determined and agreed | | | | They will be able to make sure you maintain ownership |
| to by both parties) goes towards the purchase price. If | | | | if the tenant fails to execute or tries to transfer the |
| the tenant is unable to execute his Option to Purchase | | | | option. |
| (can't get funding, etc.), this extra portion paid to the | | | | You simply want to make sure that the lease option |
| landlord is not refundable. | | | | agreement is not interpreted by the court as a "sale |
| A Lease Option to Purchase is a great way to go | | | | contract" due to the way it was written. This is easily |
| given our current economy. | | | | rectified by having an attorney oversee your lease |
| Why? | | | | agreement to purchase. |