On this page is information intended to answer many questions landlords and sellers may have regarding Lease with Purchase Options. We hope this helps and if you would like to discuss anything in this program or have additional questions, feel free to call us. We would be happy to hear from you. CONTACT US.

Question: What is a Lease with Purchase Option ?

Answer: A Lease with Purchase Option is simply a lease agreement with the option for the tenant to purchase the property. The tenant-buyer makes monthly payments (rent) plus a purchase option premium for the option to purchase the property. Upon the tenant's exercising of option, the purchase option premium covers down payment, closing costs and/or is applied to purchase price as a discount. The Lease with Purchase Option allows you to have your mortgage paid for (if applicable), plus (in many cases) have extra cash flow every month. 

Question: How does a lease with purchase option/"rent-to-own" program work ?

Answer: If you are a landlord or seller and you decide you would like us to start marketing to place a tenant-buyer into your property, please fill out and submit a Property Information form to get started. We would then discuss the terms of the agreement, get the appropriate documents filled out and signed, schedule a property visit and take pictures of the property. Once all of that is completed, we will then immediately begin marketing your property for a tenant-buyer.

For the tenant-buyer, the program works as follows:

    1. Consult with us for qualification and property location.
    2. View the property(ies).
    3. Agree to all terms of the contracts (including enrolling in a credit restoration program - if necessary) and submit deposit. Deposit consists of first month's rent , purchase option premium (including security deposit) plus any pet and/or property management fees.
    4. Upon acceptance of contracts, have any inspections done.
    5. Upon acceptance of inspections, get landlord-seller approval (e.g. you) and sign final documents [Cooperative Assignment Lease Purchase only].
    6. Get the keys and move in.

Question: How is the purchase price determined and can I get my asking price ?

Answer: Purchase price is determined by you. The price should be as high as possible yet still reasonable for the market (after all, unless a cash sale, the property would have to appraise properly). Remember, you are offering the tenant-buyer a set price for some future date and they are willing to pay a premium for your home.

Question:  What happens if the property does not appraise at the end of the lease term (typically 12-24 months) at the set price ?

Answer: If the property does not appraise, there are three options:

    1. Lower the tenant-buyers' purchase price to the appraised value; or
    2. Extend the tenant-buyers' terms until the home does appraise at the price you want.
    3. Sell property on a contract for deed/installment option. Tenant-buyer could then refinance to a conventional loan when home does appraise properly.

Question: How is the monthly lease payment determined ?

Answer: Rental price is determined by you. We can assist you in such determination by reviewing current Fair Market Rent, reviewing comparable rents and discussing things with you. Rent should be reasonable for the market but with a minimum of the mortgage payment (if any).    

Question: Why should I offer a "rent credit" ?

Answer: It can give the tenant-buyer a powerful incentive to pay their rent ON TIME EVERY MONTH.  This incentive form of "rent credit" only accrues in a month where the tenant-buyer pays the rent on or before the due date (1st of the month for incentive rent credit). At closing, these incentive "rent credits" are credited back to the tenant-buyer as seller concessions (e.g. cash back at closing to pay for closing costs). As far as what this "rent credit" could be, we suggest about $50/mo.

Question: How much are you going to charge me ?

Answer: Nothing. In fact, you don't pay us, we pay you ! Neither a cooperative assignment nor a sandwich lease purchase is a listing agreement and there is no commission as we do not represent any party (landlord-seller, tenant-buyer or broker) other than ourselves in the transaction.

In a cooperative assignment, we buy a (master) option to purchase with subletting and assignment rights and an option to lease with the option to purchase. We would then sublet and suboption the property and exercise our option to lease with the option to purchase. Upon your approval, we would then assign the sub-lease and sub-option to you and the master purchase option would be assigned to our sub-tenant-optionee. If you do not approve, we would refund the sub-tenant-optionee's money.

In a sandwich lease with purchase option, we would sign lease and option agreements with you and then sublet and suboption the property. We would pay you all rent due regardless if property vacant or leased. We would be the "perfect tenant".

Question: Where do you find your tenant-buyers ?

Answer: We are always marketing for tenant-buyers. They come to us from internet ads, referrals, this website or possibly other sources as well.

Question: What about the maintenance ? 

Answer: The tenant-buyer is responsible for most maintenance. The only repairs you are responsible for are the major repairs such as the structural, and roof, which fall under your insurance as a homeowner.

Plus, we recommend a home warranty so that repairs are covered. To handle the tenant-buyer being responsible for repairs and maintenance, a typical arrangement is where the seller pays for a home warranty, and then the tenant-buyer pays the deductible when the home warranty company sends out a service technician to do the repairs. For more information on what is usually covered under the home warranty, click on this Home Warranty link. A home warranty is the most economical way for the tenant-buyer to be responsible for repairs and maintenance, and it encourages them to call and fix things, as the deductible is only about $50-100 when the technician comes out.

Question: How is the seller protected in case the buyer vacates the property and/or causes damage ? 

Answer: First of all the tenant-buyer is responsible for most maintenance (as explained above) and with the recommended home warranty, repairs and maintenance are further covered (also see above); alternately, click on this Home Warranty link for further information.

Secondly, the tenant-buyer is of a different caliber than the typical renter. The tenant-buyer pays a non-refundable purchase option premium (including security deposit), first month's rent and possibly pet and/or property management fees. This could very well be tough for them to do. As such, the tenant-buyer generally really wants to own the home and the purchase option premium (which can become the down payment, a discount to purchase price and/or seller concessions upon exercise of option) is a BIG incentive to take excellent care of your home and to purchase it and they generally don't want to jeopardize these expenditures.

Lastly, while this is not to say that there is no risk, there are some landlord-sellers that do not conduct a thorough investigation and/or do not get a large enough purchase option premium and this slack in choosing a tenant-buyer will lead to someone who is more like a typical renter and not the caliber of person that we seek to put into your home. We always do a thorough tenant screening (background, employment and rental history (we use Tenant Tracks) and in addition, we could put in place for you a 'seller assurance policy' which would require a tenant-buyer to enter a credit restoration program (if credit below a certain amount, usually 500-580) and keep us/you informed of their lendability and progress towards getting the proper financing to exercise the option to buy.

Question: I'm uneasy about having "tenants", "renters", etc. in my house. You know how they are. Will they tear up my house ?

Answer: The great thing about the tenant-buyer in a Lease with Purchase Option, is they are generally intent on exercising their option. They realize that they are paying non-refundable money toward the purchase of the house. Why would they want to damage something that will be theirs ? Often the tenant-buyer may make upgrades or renovations to the property. The difference between just a tenant and a tenant-buyer is that they are proud of their house and they care about it. Think of it like renting a car vs. leasing a luxury car. If you rent a car, you're not too concerned if something happens to it because you know you are going to return it and walk away. However, if you put down thousands of nonrefundable dollars to lease an expensive car that could soon be yours, why wouldn't you take VERY good care of it ? 

Question: Is the purchase option premium applied towards the purchase of the property ?

Answer: Yes, upon exercising of option to purchase, the purchase option premium can be treated as a down payment on your home, a purchase price discount and/or seller concessions (cash back at closing to pay for closing costs).

Question: Could I use a Realtor ?

Answer: You can use a Realtor (e.g. real estate broker or agent) if you like, we are all about options and you are under no obligation to list your property with a broker. If you list your property for rent and/or sale with a broker, you would pay the broker commission on the sale and/or leasing of the property. In a Cooperative Assignment or Sandwich Lease Purchase agreement we have subletting rights. In this type of arrangement, if you have no listing agreement with a broker, you would pay no commission on the rental or sale of the property. However, we could list the property for rent with a broker. In this case, we would pay commission, not you.

Question: Is the purchase option premium used for the tenant-buyer's closing costs ?

Answer: Possibly. Some (or all) of the purchase option premium could cover closing costs.

Question: I know that certain mortgages like FHA do not allow a seller to give money to a buyer for a down payment, isn't this essentially what would happen ?

Answer: No, you are not giving the tenant-buyer ANY money for their down payment with a lease with purchase option. You are being paid extra funds as a premium and as such, the lender could count this premium as down payment. This premium could also be a monthly charge. In this case, the monthly premium is defined as rent above and beyond Fair Market Rent at time of exercise of option and closing. This monthly premium could also apply towards purchase of property.

Question: What about insurance ?

Answer: You should contact your insurance agent for your specific needs; however, it is now considered a rental/investment property, and you can lower your coverage so as not to include items inside the house.

Question: What about the tax benefits ?

Answer: Until the financing is complete for the tenant-buyer, the house is considered an investment property for tax purposes. There are great tax advantages to a lease with purchase option, including the fact that a large part of the money you bring in is tax deferred. Your tax advisor can discuss your particular situation with you.

Question: How soon can the tenant-buyers normally get a mortgage ?

Answer: Every case varies some, but many tenant-buyers interested in a lease with purchase option/"rent-to-own" program can actually qualify within 6-24 months. There are just blemishes on their credit that need to be resolved or removed. If the tenant-buyers need to have discrepancies on their report resolved, we can refer them to or even possibly require that they begin the process with a credit restoration company before they move in. This is our "Owner assurance policy" and in this way, we know the process is started, and it reduces the amount of time needed before they can qualify for a mortgage. With credit issues in a lease with purchase option, its not what exactly the problem is that is the question but instead what is being done about it. As long as the tenant-buyer qualifies as a tenant (meaning income good enough to support the rent and related expenses and no missed rent payments or evictions) then they should be alright provided they follow through with any recommended credit restoration program needed to obtain financing.

In other cases, credit may not be the issue. It could be insufficient employment time (typically 2 years (or 1 year for CHFA financing)). This is typically found with tenant-buyers moving from out of state (or country). Some may require time for a recent short sale to clear (2-3 years). There could be other reasons as well. Considering all of this, "restoration" time is actually one of the most crucial factors in a lease with purchase option as one thing that is to be avoided under all circumstances is the "setting up for failure" of a tenant-buyer. If the option to buy is not exercised it should only be because the tenant-buyer CHOOSES not to do so and not because they couldn't due to insufficient restoration time. Therefore, the length of the lease/option term must be long enough to allow for any restoration (credit, employment history, etc.) that a tenant-buyer may need.

Question: What if the tenant-buyer decides not to buy ?

Answer: While this does happen, it is generally unlikely due to the fact that the tenant-buyer has two major ties to the property: a financial tie and an emotional tie. The financial tie comes from the fact that all of the money they have paid is nonrefundable and can add up to a sizeable amount - thousands if not tens of thousands of dollars. The only way they can see that money again is if they close on the property. They would be better off to close on the property and then resell it themselves.

There are four major reasons where someone may not purchase the property, and most of these are catastrophic situations:

1. Loss of or transfer of job
2. Death
3. Divorce
4. Dissatisfaction with property (and/or community) during lease/option term.

We have purposely put everything into place in our lease with purchase option/"rent-to-own" programs to get the tenant-buyer to close on the property. From the nonrefundable purchase option premium, to seller concessions, to credit restoration/establishment programs, to referrals to credit issue specialist lender and more.

If, for some reason, they (or we in the case of a sandwich lease with purchase option) decided they couldn't close on the property (or chose not to), the house is still yours and in your name. You may decide to use our services again, or you may decide to try to sell it on your own or go through a Realtor. The decision is yours to make. But, we are here to help you in any way that we can because the bottom line is, you want to sell, the buyer wants to buy and we do our VERY best to make sure that happens !

Question: What are the benefits of the Lease with Purchase Option/"Rent-To-Own" model ?

Answer: The Owner has a family living and caring for their property at a much higher standard than that of the typical renter. Tenant-buyers can test out a neighborhood and get a strong feel for what home ownership is all about. Should the tenant-buyer not like either, they can move on. The tenant-buyer also has time to restore their credit and secure financing on a property that they would otherwise have missed out on.

We hope that the Answers to these Frequently Asked Questions helped give you confidence in a Lease with Purchase Option/"rent-to-own" program.

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