What is a Lease Option, and is it right for you?
A lease option, also known as Lease with the Option to Purchase, is a type of contract between an owner and a tenant, in which the renter has the option of purchasing the property after a certain amount of time.
The Tenant and Landlord sign a lease for the home at a price they agree on, and simultaneously prepare the lease option. In Colorado, an attorney must draw up the lease option addendum, and Colorado-approved real estate forms must be used for the purchase.
Is this a beneficial way to buy or sell property? It certainly can be, as shown below.
Top Five Reasons to Think About Lease Options:
From the Buyer/Tenant’s Perspective:
- This may be an alternative to qualifying for a conventional mortgage – you can get into a house now, and not wait for 2-3 years or longer.
- A Percentage of your rental payment usually goes towards purchase – you don’t get that with a regular lease.
- You will know the house before you buy it – no surprises!
- You will need to offer a down payment that is not refundable – be aware that if you can’t buy, you forfeit your down payment.
- Seller/Landlord is responsible for all maintenance issues until you buy the home – you usually pay for the utilities.
From the Seller/Landlord’s Perspective:
Offering a lease option to a Buyer/Tenant may be a good move for you – you really can’t lose!
- If a Buyer/Tenant pays upfront earnest money and does not exercise the option to buy the house – you get to keep all the down payment.
- You keep all the tax benefits and write-offs until the home is sold.
- You agree on a selling price when you sign the lease option. If the market goes down, you win, but if the market goes up, you may lose that gain. You do receive rental money each month. That amount should cover your mortgage costs.
- You have a Tenant/Buyer in your home that will take really good care of your home.
A lease option alternative will be more complex than a traditional purchase or property rental, but this may your best real estate alternative. Let me know how I can help!
Nancy Page Cooper