Lease Option Agreements of Residential Property: A lease option is a property lease for a fixed period of time, often 12 to 24 months, with an option for the tenant to purchase the property during the lease period.  A portion of the rent is applied to the future down payment if the option is exercised. 

  • The purchase price of the property should be specified when signing the lease option. 

  • A lease option differs from a lease purchase because a lease purchase requires the tenant to purchase the property.

Benefits for a Buyer:

  • Only a small amount of upfront cash in required as compared to an additional home purchase. It usually consists of the first months rent, a security deposit, and the non refundable fee to purchase the option.

  • The buyer builds a rent credit toward the down payment. Typically rent credit is 10% to 20% of the monthly rent.

  • The value of the property may increase before you exercise your option, so you may end up with the property at a discount.

Benefits for a Seller:

  • A seller can usually charge tenants a rent that is higher than the market rent.

  • The seller can usually get a better price for the property than he could if he sold the property in a traditional transaction.

  • It’s easier to sell as property in a slow market. Many of the prospective buyers who cannot afford a down payment can usually afford the monthly rental payments.