The Lease Option Buy

What does “Lease Option Buy” mean? If you are an acquirer of real estate, then this is probably a very important concept you need to add to your creative understanding.

Let me explain this term by taking you through the simple steps of how it evolves.

“To lease or not to lease? That is the question.” Residential property owners, who cannot sell their properties in today’s slow real estate market, are turning to leasing out their unsalable homes for periods of a year or more in the hopes that the resale market will return. The owner’s idea is that the rental income from the lease will help him make his monthly payments. Also, it is hoped that the renters will occupy an otherwise vacant house, pay for the electric and water, maintain the lawns and yards, and, in general, save the property from the ravages of weather and vandalism. That is the “lease” part of “Lease-option-buy.” It is a simple agreement between a landlord and a tenant known as a lease.

At this point, the question, “To lease or not to lease?” might be expanded further to “To lease-option or not to lease-option?” As an additional incentive to convert renters into buyers (and, possibly, to get the tenant to make bigger monthly payments) some owners are offering to give the renters the right to buy the property at some future date at some negotiated price. This is called an “option.” This option-to-buy combined with a lease is called a “lease-option.” There are two parties to every lease-option: the Seller, (Optionor, the one who grants the option to the potential buyer) on one side, and, the other side: the Potential Buyer, (Optionee, the party who gets the right to buy, or not to buy, the property someday in the future.) When both parties are in agreement, you have a “lease-option sell.” In this case, the seller usually has the stronger position.

The “lease-option buy” is an all-together different animal. Ownership used to mean the owners had the advantage. Not so in today’s market. The potential buyer holds more cards than a desperate seller. The strong position of the lease-option-buy belongs to the potential buyer/renter, not the seller. In this case, rather than the owner/seller creating the lease option agreement, the potential buyer/renter creates the lease-option agreement that suits his needs. This agreement favors his side of the contract much more than that of the seller. Today’s sophisticated buyer will refuse to become a party to any agreement that does not meet all his criteria and suit his needs. There are too many opportunities out there to bog down in deal that is not a good deal. Lease-option-buy allows you to acquire the use of real property often at a rent below the owner’s PITI and with little or no down payment.

The lease-option buy, also, removes the need for financing in a time when conventional financing is very difficult and very time consuming to obtain. The lease-option-buy eliminates the need for financing when it is properly structured. Remember, when you are the tenant/potential buyer, you want complete control over the real property and the owners with your lease, with your option agreement, and with all the necessary documents escrowed to make certain that the transaction is completed in full at the time of the signing of the documents.

We have been using the “lease-option buy” for over thirty years as investors in a number of states. The lease-option buy agreement we use is now known as “The Acquisition Lease.” It has been designed to allow the Optionee/Tenant (the potential buyer) to control all aspects of the real estate from the inception of the agreement to ultimate purchase of the property. The complete control of the property is now in the hands of the Optionee/Tenant. Title companies and control checking accounts are a must to make certain that there is third party control of the entire transaction, and that impeccable recordkeeping is maintained during the life of the lease-option to buy agreement.

If you have decided that some of the benefits of acquiring real estate meet your needs, then today’s receding market can be a great opportunity to get started either as a "newbie", or first-time home buyer, or as a sophisticated, long-term real estate investor. Lease-options to buy and to sell have been around for centuries. They are very powerful tools when used correctly. Remember:

Cash is king today in the market place.
Buying ties up capital!

Lease rather than buy to get the most benefits from real estate today. Lease-option-buy to get the future benefits, too.