Very good advice from Cindi. Although most rent-to-own/lease-options do specify a price up front, it's not necessary that they do so. All you need is some clear method of determining the price. That can be: (1) a locked in price up front; (2) a price to be determined by an appraisal at the time the option is exercised; (3) today's price adjusted by some figure (such as rate of inflation), or a dozen other methods.

Further, you say that if you do a "lease to own" now, it will lock you into "a very low sales price." Beyond what I've already covered, who says? It's whatever upfront price the two of you agree on. Let's say, right now, your home is worth $100,000. No reason you can't price it at $110,000 with a two year option. That's done all the time.

Why would someone be willing to pay $110,000 in two years for a house that's only worth $100,000 today? Lots of reasons. First, if they could afford to buy today, they would. You're doing them a favor by agreeing to sell them the property (and taking the risk that they won't be able to) with a locked-in price two years from now. That option is worth money. Second, prices may rise. What if prices go up 6% a year over the next two years. The house will be worth over $112,000; they'd be getting a bargain at $110,000.

Also, often a lease-option calls for slightly higher rent, with the extra credited toward the purchase price. Let's say the house ordinary would rent for $600 a month. You charge $700 a month, with $150 credited toward the purchase price. The benefit to you is that you're getting above-market rent--$100 more a month, or $1,200 more a year. (And that money isn't taxable until the option is exercised or expires; check with your accountant for details.) The benefit to your tenants is that they're building up equity a lot faster than if they had a regular 30 year amortized mortgage. After a year, they'll have $1,800 in equity; after two years they'll have $3,600 in equity.

Now, here's a dark little secret. You'd probably be better off if they did not exercise their option. You'll have collected above-market rent for two years. You may have collected an up-front option fee as well. Your lease-option should be written so that they take care of most of the home's maintenance during that period. If they exercise, OK, you've sold the property. If they don't, you'll have had tenants paying above-market rent and taking care of the place for a couple of years.

Hope that information helps.

Ginger: Instead of locking in on a price, write in to the contract that the home will be sold at market value at the time the option is exercised. Market value will be determined by two independent appraisals. You can opt to take an average of the two appraisals.... or come up with another way that would be fair for both of you....ask your Realtor to help you.

Another option is to determine the sales price upfront with increase based on historic information, with the agreement to re-examine the sales price if the home does not appraise by the buyer's lender. This may be trickly depending on the neighborhood and any declines in the past couple of years.

If you can rent it for close to your payments (don't forget to factor in some tax advantage depending on your situation) then just rent it. If your tenants can't afford now, chances are they aren't going to be able to afford in two years. Plus if you do need to sell prior you have the option.

Glen

In a typical lease to-own or Lease Option, both parties agree to a future purchase price. It is common to look at 1 year and 2 years into the future. In today's market it is difficult to project future values....my crystal ball stopped functioning last year! How about a deal where the purchase price is based on the appraised value at the time of exercising the option? Remember, if you do sign an Option Agreement with your tenant, you can't sell the house to anyone else during that time. It may also change some aspects of your landlord/tennant relationship. Check with a local attorney who is experienced with this type of transaction.

Robert Greenblatt
Keller Williams