Real estate investors and private sellers are turning to lease to own in order to sell property they no longer want. It can be a practical, efficient and lucrative way to sell!
Do you feel distressed by a home you want to sell? Have you tried listing it without any reasonable offers coming in? With lease to own, you can sell the house for the price you want, while making an extra income until the house closes. Keep reading to learn more about how to set it up, as well as the pros and cons it can offer you!
What Is It?
With a lease to own agreement, your tenant will be given a way to lease your property with the option to buy at the end of the lease term. It is typically a win-win situation that will greatly benefit both parties. It isn’t always the first thing property owners think of when deciding to sell, but as you will see below, there are a number of benefits to consider with lease options.
What Are The Benefits?
Tenant-buyers, as we call them, are committed to buying, so they are better tenants and less likely to break any of the rules in the lease agreement. They have a sincere interest in the house and the potential of future ownership and will be paying a higher than average rent plus a deposit that they will lose if they decide to leave the property. If they default on the lease, the seller may void the agreement and keep the funds that have already been paid.
Higher Than Average Rent Payments
In some cases, a portion of the monthly rent payments will go toward the down payment on the house. In other cases, the higher than average rent is pure profit for the seller. It all just depends on what is in the lease to own agreement. This inflated price is the cost of letting the tenant postpone the purchase by allowing them to lease.
Sell For The Price You Want
It is easy to reach agreement on a price with a tenant-buyer, as they rarely want to negotiate. They have fewer options to purchase and need your assistance to become a homebuyer. Usually they will agree to the price that you ask for as long as it will appraise for that price, by the time you agree to close. If you list the house on MLS, you won’t have any guarantees of getting the price you are after for the property, even in a sellers market. You may have to negotiate on price, repairs needed and closing costs.
Tenant-buyers are BUYING your home, so they have a true interest in taking care of it, unlike many typical renters. They will generally treat the house as if it were their own already, going out of their way to maintain it and keep things nice. No one wants to destroy a property that will, in the near future, be a major purchase for them.
What Are Some of The Drawbacks?
Locked In Price
The price is negotiated and set at the time the contract is signed, so if home values increase during the lease term, the seller may not take advantage of the increase and raise the price. Keep in mind though, that the alternate can be true should the market decline. The tenant-buyer could be stuck overpaying if this occurs during the lease term.
You Won’t See Your Cash Right Away
You should only agree to rent to own if you do not need the cash from the house right away. While you will receive a deposit and higher rent payments, the balance owed to you won’t be paid for a couple of years.
How Do I Set It Up?
Setting up a lease options agreement is similar to setting up a rental agreement but with an option to buy at the end of the lease term. As with any real estate agreement, the terms of the deal should be made very clear to both parties. Both the tenant and the owner need to know what their roles and responsibilities are in relation to the home. For example, in most cases, the tenant will be responsible for the repairs, maintenance and sometimes even the property taxes on the home during the duration of the lease period. Working with a professional such as Mastiff Home Buyers can help you to ensure the agreement is handled correctly and thoroughly.