So, let's use some numbers to help bring this home. Let's say you want to sell your house to your tenant buyer for 150K, and your tenant currently pays 1K/month rent. Let's also say you're willing to take a 5% down-payment (7.5K), and an option (to purchase the property at 150K using an all-inclusive trust deed [aka wrap or subject-to mortgage]) for 1K that has to be exercised within the next 12 months. Basically, that means your tenant/buyer will pay you 1K for the option, 1K/month for rent, and 625/month for the down-payment.
Make sure to redo your lease. You can keep most of your current terms the same, but you should have your lawyer to specify a clause to ensure that the tenant has to be in good standing with his/her rent in order to exercise the option.
Tenant pays option money for an agreed price, rents the property for a time, with a portion of the rent applying to the price. The price is agreed in advance.
Tenant (optionee)leases the property, there is an escalator for the price (cost of living or changes in local values or other negotiated amount/rate). Some part of the rents may or may not apply toward the purchase price.
Owner gives an option in exchange for getting a tenant. Maybe there is option $$, maybe not. Maybe some of the rent applies, maybe not. It depends on the bargaining power and motivation (desperation) of the parties.
I have been a broker over 30 years, and I have rarely seen these work to a closing: If the tenant can qualify for a mortgage he generally buys now. It is not usually good from an owner's perspective; the property is off the market and tied up for the option period (the tenant gets the benefit of any price appreciation). Even though there is a contract, the tenant often leaves before the option period expires. I don't recommend them for owner/sellers unless there is a personal or family connection between the parties.
Things to consider if you are considering giving an option to buy your property: get $$$ up front to take the property off the market, any portion of the rent applying to the purchase price should be over and above what you could get from just a regular tenant. What else: late fees?, taxesand insurance?, repairs?, are any monies refundable?, credit/rental/criminal/ employment/income record?
If you are still inclined to provide an option on your property, take the agreement to your attorney (the optionee can pay the fee if you negotiate for it). Good Luck!
Why is it a Lease Option when there is still some 100% loans out there? You can pay their closing fees anyway. So maybe make them a buyer this year with some of this possible stimulus money and benefits.
Get an attorney for a lease option if it involves them paying money over the rent and you holding it as a source of down payment.
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