Lease-Option Purchases

Overview
References

Overview

Lease-option agreements* are common when acquiring personal property—such as dishwashers, washing machines, automobiles, and TVs—but are not as common for the acquisition of real property. Lease-option agreements are generally utilized in residential real estate acquisition when a home buyer would like to purchase a home, but needs to repair her credit rating in order to secure a promissory note and mortgage. The lease-option agreement allows a buyer to lease a property for a set period of time—typically between 1-3 years—with the option to buy the property at a contractual future date. “The negotiated option is typically a percentage of the price for example, one to five percent, and is credited, along with the rents and a rent premium, to the purchase price if the lessee buys the property. If the option to buy is not exercised, the buyer will lose the option fee and rent premium.” (Real Estate Law, p. 227).

*Also known as lease-to-own, rent-to-own, lease/purchase, lease with an option to purchase, or real options.

Education

Take courses on leasing from NAR and its affiliates.

References

NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require a password.

Lease to Own: The Basics

What’s a Rent-to-Own Home and How Does the Process Work? (Forbes, Jan. 13, 2020)

What’s the Catch with Rent to Own Homes? 7 Reasons to Beware of These Deals (HomeLight, Dec. 27, 2019)

What Does a Real Estate Lease with an Option to Buy Mean? (Pocket Sense, Dec. 12, 2019)

Rent-to Own Homes: How the Process Works (Investopedia, Nov. 20, 2019)

The Basics of Lease Options and Purchase Sales (The Balance, Apr. 5, 2019)

Case Studies & Examples

‘Precedent Setting Settlement’ Ends Rent-to-Own Housing Lawsuit (The Indiana Lawyer, Nov. 12, 2019)

Can’t Afford the Down Payment for a Tampa Bay House? Now Your Rent Can Go Toward It (Tampa Bay Times, Nov. 7, 2019)

Home Partners Launches its First Lease-to-Own RBMS of the Year (Structured Finance News, Jul. 22, 2019) E

Tax Implications

Does a Rent-to-Own Option Have Tax Advantages? (The Nest)

Lease Option or Installment Sale? Determine the “Economic Realty” of Your Lease-Option Transaction or the IRS Will (Commercial Real Estate Institute)

Government Publications & Programs

Lease/Purchase Program for State Agencies (Washington State Treasurer’s Office)

Lease Arrangements (United States Office of Energy Efficiency and Renewable Energy)

Leases with Purchase Options are Infrequently Used but May Provide Benefits (United States Government Accountability Office)

eBooks & Other Resources

The following eBooks and digital audiobooks are available to NAR members:

eBooks.realtor.org

Smart Guide to Real Estate: Step by Step Rent to Own (Kindle and eBook)

Investing in Rent-to-Own Property (eBook)

Investing in Real Estate With Lease Options and “Subject to” Deals (eBook)

Books, Videos, Research Reports & More

The resources below are available for loan through Member Support. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Member Support at 800-874-6500 for assistance.

Who Says You Can’t Buy a Home! HG 2040.5 R25w (2006)

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