Lease Purchase Or Lease Option?
I live in Georgia and have been trying to Rent a 3br/2ba home for 2 months without much luck. Based on the saturated rental market in Gwinnett County, I decided to put out Rent to Own ads. Is it better to do a lease purchase or a lease option? I don't mind selling the property after I refinance to get my cash out that I put into it. How do you decide what the spread should be for rent vs lease/option.? What type of rent credit do you offer to make it worthwhile to both parties? and lastly, where can I get a lease purchase or lease option form. Is the same form used in both cases?
Any help would be appreciated. Thanks
In Texas, a lease option is just a lease with option to buy at the end of the lease term, or whenever the owner decides to sell, basically giving the tenant the right to purchase the home first. They don't normally charge any extras for this right. A lease/purchase is where you get into charge a maximum rental amount and giving back a portion of it to the renter once they purchase the property. You can also charge an option fee above and beyond the rent and deposit that is credited to them if they purchase the home within the alloted timeframe. If they do not purchase the home within that time or if they move out, that fee is lost to them. Depending on what you are charging in monthly rent you want to make sure that you still make some a profit each month, and then you can credit whatever is left. Right now I have a 2 bedroom/2 bath home on the market on a lease/purchase. The normal rent for this home would be $825 however we are charging $875 with $50 going toward their closing costs/prepaids when they purchase the home. null
Office depot has both forms and you can get them online free if you put the words in search engine.
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I am also in Gwinnett county, and I feel your pain. It is totally saturated here, and the fair market rent has not gone up much for last five years.
In GA, it's my understanding that lease purchse and lease option to purchase are totally different things. It all depends what your objectives are. I believe with lease to purhcase, you can command more money upfront (downpayment) compare to option fee with lease to option. With option to purchase, your renter will not be required to exercise his or her option to purchase the property. With lease to purchase, the renter will be required to purchase the property by the deadline, if not, he or she will lose the donn payment, or the renter and the landlord/seller have to enter another lease to purchase agreement or purchase agreement.
You just need to look at pros and cons of these two methods to make a decistion. Regarding rent credit, first you need to find out fair market rent for the area and the kind of property (based on square footage, amenities, and etc) Anything you charge above the FMR can be rent credit, and the accumulated rent credit will be credited to the buyer at the closing. It can be used for downpayment, closing cost, or escrow.
I left Lawrenceville about 2.5 years ago. Things were beginning to get a bit crazy then. If you hit some surrounding counties you may find more favorable market. I know that Newton County is pretty reasonable right now.
I stayed away from a lease purchase because of the terminology. It smells a lot like a sell and I feared a judges response to a TB'ers claim of equity. So I did LO's.
Do them the way they work for you. Either way you can make money.
I agree with you thomas. Lease to purchase is more complicated than lease option in my opinion. If your buyer/tenant doesn't pay rent/monthly payment, you will have to go through foreclosure instead of eviction. That will be very complicated and expensive.
latestarter,
I am in the same boat as you. Are you advertising in the Gwinnett Post or AJC? Are you getting any response? I received 2 calls today, both told me they had funds available to do a lease option at 3% minimum. One was a no-show and I am waiting on a phone tag reply from the other one.
The lease option paperwork I have came from lease2purchase-dot-com. It keeps the lease agreement and the option to purchase contract seperate from each other. This seems to be the way to go.
We should discuss the specifics of our properties. If I do come across anyone interested in a lease purchase that does not like my property, I would be happy to refer them to you.
Send a private message to me with your contact info. Are you going to the Atlanta Real Estate Conference this weekend?
Sounds like there's some, "rainy nights in Georgia".
A lease purchase and a lease option are two different animals. Both have an occupancy agreement (lease). One culminates with a purchase agreement, a bilateral (theoretically) enforcable contract. The other is a unilateral agreement (option) which can either be exercised or not, at the discretion of the lessee Having said that, the gurus use both terms interchangibly.
I'd apply the term least ulilized by the locals just to be a little different. Maybe even use the term, "Lease to own" or "Rent to own" or "Buy like rent".
Since rents are so soft you have to do something nobody else is doing. You either raise the drawbridge, you lower the water level or you do a little bit of both. For example, bump the price up by
$5000-$6000. Then put an ad in the paper. Rent: $850/mo Rent Credit: $500/mo (equals the $6K bump) get it??
sammy hit the nail on the head. I have very seldom sat on a property more than 2-4 weeks. Usually got rid of them within 2 weeks.
Work your numbers and give a healthy rent credit. Be sure that the rent and rent credit are in the advertisement. Do not advertise the down payment. Advertise in the AJC (everyone reads it). The last two homes that I did this way in georgia actually sold instead of LO. And they sold at or a little above FMV.
Just to better clarify what sammyvegas has already said,
L/O and L/P are 2 different types of agreements. The lease-purchase is actually a stronger position for the seller.
It will not require a foreclosure if the tenant does not pay. It is still a lease contract.
It is a sell (purchase and sale contract, remember), though it is NOT a loan.
And as far as where to find them, the best place would be your attorney, as he/she can make it state specific and designed exclusively for your situation(s).
Roger
Thank you all very much for your valuable comments. I get better responses here than any other RE message board. I am beginning to get some interest from rent to own road signs, which seems to work a whole lot better than the newspaper ads. I have some prospectives, and I hope to wrap something up by next week.
Thanks again everyone.
latestarter,
You are absolutely right. Bandit signs are working great for me. I have them in Gwinnett and Cobb counties, and I average about 5-7 calls per day. E mail me with your property, and I may have someone to send your way....
Prosperous investing,
td