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Q: Real Estate: Lease Options ( Answered 5 out of 5 stars,   0 Comments )
Subject: Real Estate: Lease Options
Category: Family and Home > Home
Asked by: nronronronro-ga
List Price: $22.00
Posted: 27 Jan 2004 21:01 PST
Expires: 26 Feb 2004 21:01 PST
Question ID: 301007
Hi There !

Today, I received this e-mail today from a realtor concerning a lease-option:

"Ron, the lease-option is structured with a lease of $2500/mo of which
$250/mo will be credited toward the purchase for up to a 2-year lease
term.  The owner is asking for a $50,000 downpayment, with the
purchase price to be $600,000."

I know very little about real estate.  So a 5-star answer would
contain 2-3 sentences on each of the following:

(1) Is the down payment due now, or in 2 years?

(2) Why would the owner do a lease-option?  Seems to me the buyer (me)
can exercise the option in 2 years if the house appreciates, or walk
away if the house depreciates.  Doesn't that give the buyer an unfair
advantage over the seller?

(3) Less than 1 in 500 real estate ads seem to mention lease-options.
Why is that?   Because real estate agents make their living from
selling and not from lease-optioning?  Other reasons?

(4)  These appear to be a good deal for the buyer.  Where could I find
more lease-options?  Web sites?  Online newspapers?  Other sources?

All comments greatly appreciated !

Subject: Re: Real Estate: Lease Options
Answered By: majortom-ga on 28 Jan 2004 07:20 PST
Rated:5 out of 5 stars
1. The portion of the down payment not included in your rent payments
is due in two years. This means that $44,000 is due if you exercise
the option at the end of two years. This is an option to buy at the
end of the two years; you have until then to decide.

2. The seller benefits because the rent will be higher than market
rent, and in the event you don't use the option to buy, they get to
pocket the difference. The seller also benefits because the price of
the house in your lease-option will be at the high end of market rate
for the house. Third, the seller benefits because they can receive
your rental income and possibly sell the house at the end of the two
years, during a slow market in which the house might otherwise sit on
the market unsold for two years (this is only relevant if the market
is slow, of course). Finally, it is likely that a renter who considers
him or herself a potential owner will take better care of the house.
These advantages, especially the high asking price, compensate for the
disadvantages you mentioned in most cases; of course it's always
possible the house will appreciate wildly and the buyer will benefit
as you described.

For more information, see:

"How do lease options work and what are the benefits?"

3. Most homes are owner-occupied, and most owners are not interested
in becoming landlords or need to free up their capital to purchase a
new home; rental income is usually not accepted as part of a mortgage
application. When the real estate market is lively, it is
straightforward to sell a home and there is no need for the seller to
look for a creative temporary-rental arrangement. As for professional
landlords, most landlords are not interested in parting with their
rental properties and ending their stream of rental income. And, of
course, buying a home now is a more straightforward arrangement in
which the seller does not have to wonder if the house will still be on
their hands in two years and the buyer knows the price is fair in the
current market. The buyer also knows that the seller will not somehow
wriggle out of the contract at the end of the term; once a house is
sold, it is sold. Real estate agents can earn commissions by placing
rentals, but most are looking for their traditional percentage of the
sale price of the home, which of course can be quite substantial and
is paid to them promptly at closing.

4. As you say, lease-option homes are not common. Most are
for-sale-by-owner and are sold locally, not via the Internet. Also,
because rent-to-own attracts people whose finances cannot support a
down payment today and whose credit ratings are imperfect, not all of
the web sites on the subject and not all of the advertisers of
rent-to-own homes you'll find anywhere are particularly ethical. Most
pages claiming to offer them on the Internet require that you pay a
fee before seeing the listings, or fill out a contact form before
receiving any information; I do not recommend them. However, after an
extensive search and ruling out many sites that do not actually let
you view listings without paying a fee, I have found one good egg. JSC
Investments does offer a freely available national listing of
lease-option homes, in which both sellers and buyers can participate
for free and contact each other directly, although it is not
particularly extensive and does not currently have entries in all

JSC Free Real Estate Listings

If you choose to pursue a lease option, be sure to retain a real
estate lawyer personally and have them go over the documents very
carefully. Do not simply accept the assurances of any agent working
for the seller.
nronronronro-ga rated this answer:5 out of 5 stars
majortom ---  outstanding answer.
Concise, well-reasoned, no fluff.

Thank you very much !

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