Home Buying in 91356>Question Details

Cpearson1982, Home Buyer in Greenville, SC

Check List for Lease to Own...

Asked by Cpearson1982, Greenville, SC Tue Jan 31, 2012

I am looking for a property to lease to own. Here are the details: 2 year lease, property under $75k, I'm putting $5k down.

What are the do's and don'ts to signing a lease-to-own agreement? What things should I do to protect myself?

Help the community by answering this question:


I've answered this question a lot here on Trulia. (As have others.) Just do a search.

Just real quickly:

Don't do a 2-year lease. Make it longer, and make the option longer. If you can close in 2 years or less, great. But build in extra time. Three to five years is much better.

You're not putting anything down. The $5,000 is a non-refundable option fee, not a downpayment. The difference is very important. Further, a $5,000 option fee is awfully generous for a $75,000 property. It's all negotiable, but $2,000-$3,000 would be more typical. I've done properties with zero option fee.

Include a provision in the option in the event the house doesn't appraise for the agreed-upon value. The provision can say any number of things: That the option is extended for another 1-2 years at no charge to you. Or that you can get your otherwise nonrefundable option fee back. Or that the seller agrees to sell the property to you at the appraised price. And so on. But you need some protection.

Make sure the owner is paying the mortgage. There are lots of ways to do that. A third party can be named: You pay the third party, and the third party pays the mortgage. Or you make out two checks to the seller: One to the mortgage company for the mortgage amount and the other to him for any extra you owe on the lease. Or you can have the seller sign a statement allowing you to access his mortgage records to make sure the payments are being made. Or you can use a land trust structure, in which there's a third party trustee.

Make sure responsibility for repairs is spelled out.

Make sure the amount of the rent credited to the purchase price is spelled out. Try for 20% or more.

File a notice of agreement with your county clerk to cloud the title--making it difficult/impossible for the seller to sell to anyone else.

Have a lawyer review all documents.

Don't pay up-front money to an investor for a listing of properties. You may find your lease-option through an investor (who's probably doing what's called a sandwich lease-option). That's OK. The investor can make plenty of money that way. There's no need for someone to charge you $50 or $100 or $200 just for a list of names or available properties.

Make sure either the investor actually controls the property (through ownership or an option of his own) or that you're dealing with the actual owner(s). There are plenty of scams out there--people who claim they own properties when they don't. You'll especially find them on Craigslist.

If you deal with a Realtor--you don't need to but it might help--make sure the Realtor understands lease-options. Some do. Some don't.

If you're doing a lease-option because you're unable to buy a home today (which is probably the only reason you should consider doing it), make sure you have a

Here's a link to a blog I wrote on how to find lease-options: http://bit.ly/findaleaseoption

Hope that helps
2 votes Thank Flag Link Tue Jan 31, 2012
Don Tepper, Real Estate Pro in Burke, VA
Simple answer. Don't do a Lease Option in this market. Just don't do it! You're not going to be able to lock in a low interest rate now, you're not going to get a solid figure on what your purchase price is going to be in 2yrs. You have a very HIGH chance of losing your Non-Refundable Option monies. It's just BAD for you all around.

What you should do, is get into a 2yr lease somewhere, if you know you can't qualify for a loan for the next 2yrs, maybe you had a BK or something or need to iron out your credit issues first. Many homeowners wanting to rent their property would be happy as a clam to have someone like you in a locked up lease for 2 whole years!

All you need to do, if you REALLY like the home you're about to rent for 2yrs is put a clause in your lease that states you have "FIRST RIGHT OF REFUSAL", so if the owner wants to sell in 2yrs or less YOU get 1st dibs with NO ( $0 ) option monies coming from you!

During your lease term you'll get to know the neighborhood & areas better & you may learn that you don't want to buy THAT particular house, at which time you can move on (without losing option monies) and go buy the home you really want!

Sorry, maybe that answer wasn't so simple, I type super fast!

Shoot me an email directly if you want to talk about this some more, I don't look back on this same Trulia thread for answers posted after mine.

562-430-3053 c
Realtor Since 1996
Main Street Realtor
0 votes Thank Flag Link Tue Jan 31, 2012
Regarding rent to own, research the subject in depth before jumping in. It is probably not what you expect. In this type of transaction the underlying assumption is the seller will be able to perform in addition to the tenant/buyer. That is a very big what if, sellers are not subject to the same federal regulation as banks, do you really know the seller well enough to give them your hard earned money? I have discussed this in the blog entry linked below.
0 votes Thank Flag Link Tue Jan 31, 2012
Thanks! I do want to note that I am getting a townhome...I know there are no houses for that price that I'd be willing to live in.
0 votes Thank Flag Link Tue Jan 31, 2012
We are getting a lot of questions about Lease/option;
Some people think that there are a lot of L/O properties out there,
There are not!

The primary reason for the Buyer doing this, is that they cannot get a loan from a bank.
The primary reason for the Seller doing this, is that they haven't been able to sell their property.

To answer your questions:
There are not very many properties for $75,000 that do not need a lot of re-hab,
Most of them are owned by the Banks.
Assuming that you did find a viable house for $75, the terms for a L/O are variable; they can be whatever the two principles agree to, including the Deposit, the monthly payment, the allocation to the Option, the Selling price and the Contingencies and terms.
This is a real "Caviat Emptor" for all concerned:
I would suggest involving a Real Estate Attorney.

Good luck and may God bless
0 votes Thank Flag Link Tue Jan 31, 2012
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