What is a Lease Option?


Video Summary


What is a lease option?  Well, I like to rephrase that clause, and I’ll explain later that saying.  It should be a lease with an option to purchase.  It’s utilized whenever you want someone to purchase some property; however, they don’t have a lot of money to put down on the property, and they’re not able to obtain financing to purchase property for cash, yet they want to move into the property.  So what you do is you enter into a lease to lease them the property for a certain period of time, and then you attach to that an option to purchase.  Well, what does the option do?


It sets the price of a certain dollar amount so during the option period, which usually coincides with the lease term, the tenant is in a position to purchase the property for that amount.  So you have someone that is recovering from a foreclosure that needs some additional time to get their credit back up so they can go get a bank loan is one circumstance.  Other circumstances would be if they’re looking for the down payment to come as a result of a lawsuit settlement, or there are any number of scenarios wherein the parties do not have a sufficient down payment to be able to purchase the property.  And if you have a mortgage on the property, you’re not in a position to take back a mortgage, or if you did, it would be a wraparound mortgage.


Now one of the advantages over a lease with the option to purchase versus a sale of the property under an agreement per deed or a deed in mortgage is that the foreclosure process takes about a year to accomplish, and is very expensive.  It will probably cost in the neighborhood of $3,500.00 to $5,000.00 to foreclose.  Whereas with a lease with an option to purchase, you’re looking at an eviction action, which would take approximately 30 to 45 days in which to get rid of the tenant if they failed to make the payments.


Now the term “lease option” is a problem if you combine the lease payments with the option payments.  Then it can be considered an agreement for deed, and you can be required to foreclose those.  So it’s very important that if you’re going to enter into a lease with an option to purchase that you specify or keep the option separate from the lease.  Although it would be contained in the lease, it needs to be very clear that they are two separate rights: one is tenancy, and the other is the option to purchase.


So if you’re interested in selling your property under a lease with an option to purchase, well, give me a call at 727-847-2288.  If you’re going to enter into a lease with an option to purchase, and you’re concerned about the landlord, I suggest you give me a call, and it might do well to do a title search to make sure that the property isn’t in foreclosure; that the mortgage on the property does not exceed the purchase price.  So that once you’re in a position to purchase the property, you know that the seller will be in a position to sell it to you.


So if you have questions, give me a call at 847-2288.


Thank you.