Rent or Buy - Lease Options

Winners and Losers

Life is not a one way road and when it comes to make a decision about Rent-Or-Buy – what way do you want to go? Renting, Home ownership or something between?

What ever road you choose to go, when it comes to money, make sure you carry a long-term decision. Be mindful of short-term rentals, which are more expensive, breaking fees on loans or contracts when changing mind.

Would you consider a so-called Rent-to-Buy or Rent-to-Own Contract?

The short answer is, it might work for somebody, but as outlined on our website we don’t offer these services, why [read more]. Recent reports in the media about Rent-to-Buy scheme cast long shadows across the industry by not saying what the faults in these agreements really were. Maybe greed—my guess.

Instead - why would you look at Lease Option Agreements?

The basics of Lease Option Agreements are quite simple [read more]. Lease Options make sense if they are an advantageous agreement for both tenants and the landlord. Those agreements basically secure the right for the tenant to purchase a property in an agreed timeframe and at a fixed price. For that exclusive right the tenant pays a consideration fee of one Dollar or more that we deduct from the purchase price. In other words no extra payments or additional fees attached to it.

In legal terms the tenant takes full control over the property, he could even sell a option agreement for more than 100% profit and is not obligated to buy the property. The landlord carries all related risks for maintenance, insurance and finance.

Price wise the tenant usually signs a contract above the market value. That might be a consideration, but further down the road in two or three years time that will definitely be a different story when adding onto the valuation the price increase based on inflation rate. For instance by 300k is the price increase on inflation annually 10k.

What are Lease Option’s Pitfalls then?

That question related to the contract. If the contract is well designed with an exit strategy and both parties are committed to work towards the end of the lease that tenants will obtain finance to execute the purchase, it will be a win-win situation.

The property owner carries the financial risks but gets motivated tenants, and tenants have a long-term plan with fixed costs to get what they wanted. To keep it in this way we always require a consultation with an attorney to make sure the conditions in the contract are beneficial and understood.

But in spite of these obvious incentives a lease option agreement can backfire if one party breaches the contract for instance doing not consented alterations to the property or simply changes mind.

What seems like a good price when signing the contract can look in three years time unfair for the seller or buyer resulting in a disappointment. People got divorce, etc.

The pitfall is not all human uncertainties are covered by the contract. But honestly – that is human life.

Klauster

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Rent-or-Buy; What are Lease Option Pitfalls, how to protect yourself when going into home ownership? What is your road - renting, home ownership or something between?