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Its no secret that it can be tough to sell in this market.  It can also be tough to buy--especially if you've got late pays, a short sale settlement, foreclosure or bankruptcy on your record.  An overlooked solution that sometimes can serve everyones' interests is the lease option.  It serves the landlord because they can get a little more rent for the property than they otherwise could get--sometimes helping them avoid having to sell the property in a down market. It serves the renter because they can start socking away a bit of potential future equity while renting--an entry into (or back into) home ownership.

HOW DOES IT WORK?  In a lease option, the tenant (renter) enters into a lease--typically for at least a year--just like in a standard lease transaction.   The rental amount is usually the going rent (call it fair market rent) plus a little "more".  A portion or all of this "extra" rent is applied to the purchase of the home when and if the renter elects to purchase the property.

WHAT PRICE DOES THE RENTER PAY FOR THE PROPERTY?  This is up to negotiation.  It is usually done one of a few ways.  Either the renter can elect to purchase and pays (1) a purchase price that is agreed upon at the start of the lease or (2) the fair market value of the property at the time of purchase (often determined by an appraisal) or (3) the fair market value at the start of the lease.  Which one should you chose? Depends on if you are the landlord or the renter and if you think the market is going to be up or down at the end of the lease. 

BEWARE!  Make sure your lease option is well drafted.  There are a few legal pot holes to avoid and few things to remember (1) The lease option is an "option".  The renter is not obligated to purchase--they decide if they want to buy or walk away (or extend the lease--if the lease allows it or the parties agreed to it). The landlord can not force them to buy the property.  (2) The option should cover things like when the renter can elect to purchase, how long they have to decide and when the option expires.  The lease option is a legal document and is best prepared by a lawyer or real estate agent that is comfortable with these type of agreements.

Have any questions about lease options or any other real estate issues? Don't hesitate to call! (714) 863-5485