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You may or may not have heard about lease options. Why and when would this be a credible strategy to sell your house? We’ll discuss those concepts here.
A lease-option allows a seller to sell their property when it may otherwise be difficult to sell (poor physical condition, undesirable area or neighborhood, buyer’s market, etc). In many cases, a seller can net more money when offering terms to a buyer. In addition, sellers can often avoid paying realtor sales commissions by using a lease-option agreement (as they have already found the buyer themselves).
In most lease-option arrangements, the tenants agree to pay move-in “option” money that will be used for credit toward a down payment on the house. You’ll also want them to demonstrate their commitment by paying above-market rent, the “above” portion of which (10 percent and up) will be credited toward a sale. If the tenants back out of the deal at the option point — typically one to three years after move-in — you’ll get to keep those monies, which can amount to a nice little chunk of change. Another bonus is that lease-option folks are inclined to maintain a home better than conventional renters, because they have a vested interest in it. In other words, you’re less apt to suffer the dreaded “renter trashing.”
Also, you get to retain the income-tax benefits of the house during the lease period and won’t have to pay taxes at all on the option money until it’s formally credited toward the house.
A lease option, by the way, is not to be confused with a lease purchase, a very similar arrangement but one in which the tenant is obligated to buy the house at the end of a lease.
It’s important that you know what motivates most lease-option buyers. Because the option money is less than a down payment, lease-option homes are easier to get into for these folks and good credit isn’t as much of a prerequisite. The arrangement also gives buyers time to knock around the house a little more, get a better feel for the neighborhood and local culture, and perhaps establish or repair credit. They’re also happy to be building equity instead of just making a landlord happy, and glad to be able to lock in the purchase option at today’s home prices.
If you do decide to sell your home with a lease option or purchase option, I recommend that you consult with a good real estate attorney that can draw up the contracts and help you understand all the legal ramifications of this strategy.
