How does a Lease Option work?

Are you considering your options between leasing and selling?  Are you confused by the terms Lease Option, Lease Purchase, Rent-to-Own, Lease-to-Own and what the difference is?

Here is some helpful information about these hybrid real estate transactions that you can organize into a deal:

  1. Either agree on the sale price now and make a sale contract,  or wait until later (one is called a lease-purchase, and the second can be called a lease option)
  2. Sometimes the tenant puts down option money (a few hundred to a few grand) that the seller will keep if the tenant doesn’t buy, or it can go to the tenants down payment when they do purchase.
  3. Sometimes a percentage of the tenants rent goes to the tenants down payment when they buy.  If the seller knows that they will be selling the house for, they can try to “build in” this percentage up front and it’s not money from their pocket.
  4. 4. Sometimes the tenant is encouraged to pay extra rent, which will be matched by the landlord towards the down payment when the purchase closes. If the tenant does not close the owner keeps the extra rent money that the tenant paid.

Many tenants don’t end up buying (I’ve heard 65% do), so if your seller can get option money, and an extra monthly payment, he’s loving life.

How the REALTOR® gets paid: The agent gets the first months rent (split between both agents if the seller and tenant both have one), then at closing in a year,  The normal sales commission will be paid, minus the first months rent they were already paid.

There are plenty of other variables and things to consider about these deals, inspections, appraisals, escrow accounts,  pre-approvals, etc.

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