Lease with Option to Buy or a Lease-Purchase may be the best way to sell a property in today's tight real estate market. The lease to own or lease before closing type deals are ideal when a seller has a home with little or no equity, and needs to sell the home. Since seller does not have the ability to negotiate much on price, the seller has to offer some other incentives to sell this home, such as creative financing. When a potential buyer has good employment and income, but lacks good credit or the ability to get financing currently, a lease option or lease purchase can be a true win-win.
Lease with Option: Leasing with an option to buy is exactly what it sounds like - a renting tenant signs an agreement with a landlord stating that the tenant can buy the property at the end of a lease term. The owner is obligated to sell at the option price, but the tenant is not obligated to buy.
Lease Purchase: In this situation, the buyer is obligated to purchase at the end of the rental period. Both a lease and a contract to purchase are executed, and the buyer does the inspection before taking possession of the property. In that way, the buyer can be responsible for maintaining the property. There is typically a deposit made at the time of contracting, which will represent a security deposit as well as an earnest money deposit, and generally will not be refundable.
Under either scenario, the seller is in a more secure position than if he/she sold the property and took back a mortgage, because the seller still owns the property. The seller also receives rental income and can take income tax deductions. For buyers, the biggest draw is the fact that they get more time to qualify for mortgage financing.
I have successfully done these transactions, and all parties were delighted with the result. The seller is able to stop the bleading (receiving rent now that is used to pay the seller's mortgage payment) and the buyer gets to move into a home now that he/she will own someday. The contracts are all at sales prices that the seller could not otherwise get in today's market, and which the buyer is willing to pay to have the creative financing that the seller is offering.
Before entering into such an agreement, it's a good idea to get an attorney involved to be sure all bases are covered.
