Lease/Option Sale

The best alternative to selling a property right away may be to lease it with an option to buy.

A Lease/Option involves leasing a property to an investor or tenant-buyer who agrees to buy the property at a future date and at a pre-determined price.

Lease-Option Example

- Current Appraised Property Value: $220,000

- Existing loan(s) payoff: $205,000

- Monthly Loan Payment (PITI): $1900

- Lease Payment: $1900

- 3-Year Option Sales price: $225,000

In this example, the
property is leased for the loan payment of $1900/month, to an investor, who has an option to buy the property, within 3 years, at the premium price of $225,000.

The investor will then offer the property on a rent-to-own plan to one of many pre-qualified tenant-buyers that are looking to buy a home within the next 3 years.

IT'S ALL ABOUT HOMES, LLC can manage this entire process for you by contracting to lease your property from you (with an option to buy), and then assigning or reselling the property to a tenant-buyer that would like to buy a property on a rent-to-own plan while the seller maintains control over the process. The Seller can ultimately decide who they would like to have in the house from the buyers we send.

Lease-Option Advantages and Disadvantages

The advantage to a lease-option is that the owner can quickly have someone take over the responsibility for making their mortgage payments without having to transfer title or provide financing. The property may also sell for a premium price because the seller can set the price at the home’s market value.

Disadvantages to a lease option are that the owner is not selling, but instead they are a landlord until the tenant-buyer actually qualifies to buy the property; though all maintenance is now the responsibility of the tenant-buyer. Additionally, Life Happens! There is no guarantee that the buyer will exercise their option to buy or will be able to qualify for a loan when the time comes for them to buy. 

Disadvantage: The property value could be worth less than the option price in the future. So a lender might not provide a loan at that price to a qualified buyer. 

Advantage: Finally, the Tenant-buyer has a different view of your property than just a "Renter". Because he's Leasing to Own vs Renting, there's usually an ownership mentality, wanting to add a fence, paint, add flooring etc... Which typically will increase the value of the property. They're also usually paying down the mortgage.

Obviously, most people would prefer to sell FAST and at a PREMIUM PRICE and get any or ALL OF THE MONEY up front. Unfortunately, that option may not exist, so you may elect to choose between the tradeoffs of selling using the various options listed in on this website. 

If you want to SELL and not just LEASE, then the mortgage payment assignment program or wrap-around mortgage sale program may be better alternatives.

Common Questions about Lease-Options

Questions: How can you help me with this process?

We can manage this entire process for you by contracting to lease your property from you (with an option to buy), and then assigning or reselling our interests in the property to a tenant-buyer that would like to buy a property on a rent-to-own plan.

Questions: What are good alternatives?

Answers: If you do not have significant equity, than the mortgage payment assignment program or wrap-around mortgage sale program may be better alternatives. If you have significant equity, there are many options listed on this website.

Questions: What if the tenant/buyer stops making the payments?

Answers: If payments are missed, you have the right to evict and start over with a new tenant buyer.

Questions: What if the tenant/buyer trashes the property?

Answers: You would have to evict them, clean and repair the property, and then find a new tenant/buyer. We of course, would love to assist you.

Questions: What about the interest deduction and other tax ramifications?

Answers: As a landlord all rent received is treated as ordinary income, while all expenses (mortgage, taxes, interest, repairs, insurance) are deductible. If the rent is about the same as the PITI payment, then your tax ramifications should be minimal.

Questions: Can I buy or rent another property after doing a lease-option?

Answers: There is no rule that says you can’t have more than one mortgage, and, for example, most landlords have many mortgages.

You may have to explain to your new lender (when asked about the old loan still on your credit report) that you are leasing your property. Note: in some cases, although someone is effectively making the payments on the loan, and the amount of the payment covers the expense of the payment, having the loan will affect your debt to income ratios. This can push some buyers below the current lending thresholds. Each individual is treated differently and getting another loan on a new property is certainly not guaranteed. So you’ll need to check with a mortgage banker to find out how your individual situation will be treated.

Another option, if you would like to buy another property, is allowing us, IT'S ALL ABOUT HOMES, LLC, to find you a property that is available through the Mortgage Payment Assignment Program or one of the other forms of owner financing.

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