Pros And Cons Of Lease Options

A lease option purchase is creative way of purchasing a home.

A lease option is an agreement to lease a home and purchase it within a certain period. The renter/ purchaser pays an additional fee each month above the rental price that goes toward the down payment on the house. A lease option purchase is creative way of purchasing a home when you do not have the down payment or when you need time to clean up your credit report. For the seller, it is a great way to sell a home for top price if they have a little patience. Just as it can be a great way to purchase a home, there are also some negative aspects to it.

Pros for seller/landlord:

1. The seller/landlord receives above market price rent for the property. Because the tenant is paying extra each month as a down payment on the property, the property owner essentially gets extra rent for the unit.

2. The seller/landlord receives top dollar for properties. Since rent lease options are in high demand, the owner does not have to discount the sales price on the property.

3. The seller/landlord will get the best tenants. A tenant interested in a lease purchase option is usually a quality tenant who will treat the home like it belongs to them.

Cons for the seller/landlord:

1. The sale on lease purchase properties often fall through. Some tenants decide to purchase a different property, or wind up not being able to purchase at all. Therefore, they often back out of purchase, so a rent lease option is not an automatic sale. 2. Seller may miss house appreciation. The seller usually sets the sales price in the beginning of the lease purchases. When doing this they take the chance that they may miss extra income if the value of the home appreciates quickly.

Pros for buyer/ renter:

1. The renter/purchaser gets to try the house before they buy. This will help them ensure they want to want to buy the house, or might they find out that the house has hidden defects and can back out of the sale.

2. The renter/purchase gets to live in the home while saving for the down payment. This allows them to feel like they are in their own home.

3. In many cases, only a small down payment is required from the buyer/renter at the start of the lease purchase. It is much easier to have the buyer hold the money through the lease purchase agreement than to save on their own.

Cons for buyer renter:

1. Unscrupulous property owners will cancel the lease option because of one late payment and keep your money. They count on the tenant not being able to buy the house or make on time payments every month for three months, allowing them to pocket the down payments. You can avoid this by writing into the contract an allowance for three late payments before forfeiting the rent lease option.

2. If you decide not to go along with the purchase, you lose your down payment, which could be one-month rent to several months rent, plus the lease option amount being paid monthly.

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