Is lease to own really a good deal? - Posted by Tyler

Posted by Al - So Cal on January 25, 2002 at 13:14:07:

A real story that happened near me.
An old lady leased optioned a house to a young couple
for 36 months at a certain price.
At the end of the option period the couple advertized
the property and put in escrow making $150,000.
They did this without having any money of their own.
The old lady was furious but legally could no nothing
to stop it.
Yes. L/O can be pretty good.
Incidently, I bought a home that was advertized as
L/O, called the owner and suggested I just buy it outright.
It was a great deal. He could have hit me over the
head with a brick when he looked back at the deal
a year later.
L/O are hard to find in a good market like now but
when the market gets bad that`s the time to get busy
on them.

Is lease to own really a good deal? - Posted by Tyler

Posted by Tyler on January 25, 2002 at 11:29:59:

Hello all…no specific details, however i have been warned against lease to own/rent to own type arrangements. Something to do with losing what you have invested because you cant afford the balloon payment… so anyway, any opinions.

Re: Is lease to own really a good deal? - Posted by JohnBoy

Posted by JohnBoy on January 26, 2002 at 01:28:01:

First of all, there is no “balloon payment” that comes due in a L/O.

You have an “option” to buy and from the time you enter into the agreement until the time it expires, you need to exercise your option to buy the property if you choose to.

You can either exercise the option and buy the property for the option price you agreed on, or you can elect not to buy and just walk away. The money you have invested is the “option consideration” that you paid to get the option. If you walk away by electing not to buy, then the “option consideration” is NON-Refundable!

No one usually has the money to buy as far as having the cash on hand, they have to get a loan to buy the property just like most people do when buying a home. The L/O allows someone time to reestablish themselves so they can qualify for a loan to buy the property. This usually requires the tenant/buyer to work on repairing some credit issues they have. If they don’t do all the things required to accomplish this then they won’t be able to qualify for a loan and won’t be in a position to exercise their option as a result. Who’s fault is that going to be???

If they do all the things required of them then getting a loan shouldn’t be a problem. So if you were someone that had severe credit problems that no matter what you did over the next year or two, then you shouldn’t get involved with a L/O since you will never be in a position to get a loan by the time your option expires.

As far as the payments you make each month while leasing and living in the property, that is only RENT you paid during the L/O period. That wouldn’t be any money lost that was invested since no matter where you lived you would have had to pay RENT to live there anyway!

So your only risk is the amount of option consideration you paid, which you did get something of value for that money. What did you get for that? You bought the “option” to buy the property. You bought the right of locking in a purchase price long before you have to commit to buy IF you decide to buy. You bought the right to tie up the property during the option term that prevents the seller from being able to sell the property to someone else while you have an option on it. You bought the right to take advantage of any future appreaciation in the property if it were to increase in value by exercising your option. You bought the right to just try out the property while renting it to see if it’s something you really want to own. You bought the right to just walk away from the property when your L/O expires should the property drop in value if the economy dumps while you have an option on it, leaving the seller stuck with a property that is now worth less than what he could have sold it for when he first sold you the option. You bought the right to force the seller into having to sell you the property if you choose to buy it before your option expires, regardless of how much more it may be worth at the end of your option. You bought the right to keep the property off the market until your option expires.

By paying the “option consideration” you have purchased a lot of “rights” for the amount of money you paid, whether you exercise your option or not!