Lease Purchase Real Estate Agreements

Lease Purchase Real Estate Agreements: What You Need to Know

Lease purchase real estate agreements are a popular option for individuals who are not ready to commit to a full purchase of a property but still want to secure a home for themselves. These agreements are also commonly known as rent-to-own agreements. In this article, we will be discussing everything you need to know about lease purchase real estate agreements.

What is a Lease Purchase Real Estate Agreement?

A lease purchase real estate agreement is a contract between a buyer and a seller of a property. The buyer will lease the property for a specified period of time, typically 1-3 years, with the option to purchase the property when the lease agreement expires. During the lease period, a portion of the rent paid by the buyer is put towards the future down payment on the property.

How Does a Lease Purchase Real Estate Agreement Work?

In a lease purchase real estate agreement, the buyer will pay an upfront option fee to lease the property. This fee can range from 1-5% of the purchase price of the property. The option fee gives the buyer the right to purchase the property when the lease agreement expires. If the buyer chooses to purchase the property, the option fee will be put towards the down payment.

During the lease period, the buyer will pay rent to the seller, which is typically higher than the market rent. A portion of the rent paid will be credited towards the future down payment on the property. If the buyer decides not to purchase the property at the end of the lease period, the option fee and the rent credit will be forfeited.

Advantages of a Lease Purchase Real Estate Agreement

For buyers, a lease purchase real estate agreement allows them to secure a property while they save for a down payment. The option fee and the rent credit will go towards the future down payment, making it easier for buyers to save up for the purchase.

For sellers, a lease purchase real estate agreement allows them to sell their property without having to wait for a buyer to secure financing. It also allows them to earn a higher rent than they would with a traditional lease.

Disadvantages of a Lease Purchase Real Estate Agreement

For buyers, the main disadvantage of a lease purchase real estate agreement is that they may end up paying a higher rent than they would with a traditional lease. The option fee and the rent credit may also be forfeited if the buyer decides not to purchase the property.

For sellers, the main disadvantage is that the buyer may choose not to purchase the property at the end of the lease period, leaving the seller with a property that they need to sell again.

Conclusion

Lease purchase real estate agreements can be a great option for both buyers and sellers. They allow buyers to secure a property while they save for a down payment and allow sellers to sell their property without having to wait for a buyer to secure financing. However, it is important to carefully review the terms of the agreement and consider the potential risks before entering into a lease purchase real estate agreement.