Quick Takeaways

  • Lease-to-own is a great option for potential homebuyers who need to work on their credit, or want to make sure the property is a good fit for them before purchasing.
  • Lease-purchase contracts often include a set purchase price, a monthly rent amount, instructions specifying how the monthly payments will be applied to the purchase option, and often last for 1-3 years.
  • Keep in mind that you still have to qualify for a mortgage when the time comes, and that your pre-agreed upon purchase price may not reflect current market value of the home.

Source: Should You Lease to Own Property? (Millionacres, Feb. 4, 2021)

Lease-Option purchases are a unique way to achieve homeownership. In a Lease-option purchase, often called “lease-to-buy” or “lease-to-own,” a renter enters into a legal contract with the owner of the property stating that a percentage of the rent will go toward purchasing the unit. Often, the purchase price and length of agreement are pre-determined. This method is great for those who need extra time to build up credit and savings or who simply want to test out an area before committing.

With record high home prices and record low inventory, would-be buyers are looking for creative ways to purchase homes, lease-option purchases included. Multiple startups have gotten in on the action, including Pathway Homes, which just spent $750 million dollars on lease-to-own options. This method can be used successfully in commercial real estate as well, especially for smaller, family-owned businesses.

Lease-Option purchases do come with a variety of tax and contract considerations. Make sure you familiarize yourself with IRS write-offs, property tax law, and IRS reclassification. The government has a variety of sources, listed above, to help you understand the ins and outs of lease-option purchases!

See References for more information.

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