specifics of a lease purchase

Asked by Caren, Columbus, OH Thu Oct 25, 2012

We are possibly entering into a lease purchase transaction. Any advice?

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Ralph Rennin…, Agent, Powell, OH
Fri Oct 26, 2012
Several things to think about to protect you.

1) Treat it as a purchase at this time, thus have a home inspection completed at this time and the Lease / Purcase contingent upon your satisfaction of the Home inspection. 1a) Make sure the home inspector is ASHI Certified and NAHI Ceritified.

2) Make sure you have firmly in writing what your payments go to, at times they can go to the principal and at times they go 100% to your lease only.

3) Make sure the earnest money disbursement in the end is spelled out properly as to what happens if and when one party does not perform.

4) You may want to have a preliminary Title Search completed at this time, This makes sure the current owner can sell the home at the end of the term of the lease.

5) A tough one is, What price are you going to pay at the end of the lease, The current todays agreed upon price which for the buyer would be the better way since homes are espected to rise in the next couple of years, thus buying at the 2012 price will be less than buying at the 2013 or 2014 price,

6) You should seek legal advise from an attorney if you feel the need, They will have many more ideas to contribute than the few above if you so desire. If not an attorney at least have a seasoned Real Estate Agent look over the contract.

Hope these ideas help, keep me in mind when buying or selling real estate,

Ralph Renninger CRS
Trust the best, a CRS
1 vote
Annette Law…, Agent, Palm Harbor, FL
Fri Oct 26, 2012
Lease purchase and others arrangement of similar purpose is, in most cases, a one sided affair.
RARELY does a buyer entering into such agreements EVER end up owning the home. Often, one can assume, circumstances for the buyer change during the course of two or three years and they choose not to execute the option. Usually, the GIGANTIC cost of exercising the option at that future time, reveals the buyer was unrealistically optimistic regarding the future financial situation or simply made a commitment in defiance of their history and the income data.

These options for home purchase are so agreegiously predatory, that some states have banned them entirely.

The path you should take is to consult with a professional. The complexity of these arrangements and the wording of the contract must be visible to understand exactly what you are getting yourself into. Soliciting opinions from an aggregate real estate website will not prove beneficial in reducing your exposure to calamity. You are entering into a contract, a binding and legal document which requires an ATTORNEY!

Best of success to you,
Annette Lawrence, Broker/Associate
Remax Realtec Group, Palm Harbor, FL

First Look: http://youtu.be/PumYpkgybXE
1 vote
Don Tepper, Agent, Burke, VA
Fri Oct 26, 2012
Thanks for the clarification. It helps greatly.

Ask your lawyer whether some mechanism other than a lease-purchase might work better in your situation. A lease-purchase is a bit "loose" considering that there's a specific property, a specific buyer (the investor), and the certainty that you want to purchase from the investor. I personally love lease-options, but they're not right in all situations. And in your case, something else might be more direct.

For example--and I'm not a lawyer so this isn't legal advice--the investor might purchase it, put it into an LLC, and then you purchase the LLC.

Or--a bit more complicated but really well-suited to your situation--use a land trust. The investor would buy the property, then transfer it to the trust. You'd be named a beneficiary of the trust. The trust would specify all the details of the purchase.

I see you've already given Ralph the "Best Answer." I agree that, faced with a general question about lease-purchases, his answer was definitely the best given. However, it still pertains more to general situations than your specific one.

Hope that helps.
0 votes
Thanks so much!!
Flag Fri Oct 26, 2012
Caren, Home Buyer, Columbus, OH
Fri Oct 26, 2012
Some information to add to this discussion that I think may help make some answers more applicable.

We have good credit. I am qualified to buy a house more expensive than this one.

I really want this house, it is underpriced because it was a foreclosure, it needs some work but my husband is a qualified contractor and we have extensive experience remodeling and building, and the bank was ONLY willing to take a cash offer (which we could not do). Our realtor found an investor that would be willing to buy it from the bank, and sell it back to us for less than a 20% markup if his cash offer gets accepted. This, from what I understand, would allow it to be sold again within a 120 time frame by FHA guidelines. It would still price it under what we would have paid for a finance offer.

I have an attorney. I have a realtor who seems to be very proactive.

We would want to buy outright as soon as FHA standards are met (within 30-60 days) and our agreement to purchase would state such.

Perhaps this will allow answers to be more specific.
0 votes
It appears you have your bases covered. I wish you well, make sure the attorney is not connected with the Realtor or investor.
Flag Fri Oct 26, 2012
Carol Toronto, Agent, Powell, OH
Fri Oct 26, 2012
You do not mention whether you are the buyer or seller. The points Ralph Renninger makes are very good and are directed toward the buyer. But always have a good real estate attorney involved, whether you are the buyer or seller. Regardless of the experience (I have 25 years), we are not attorneys and at some point a Realtor cannot cross that line. My experience has been that most lease purchases fail. In fact there are real estate investors who specialize in this type of purchase and make money because they do fail, since most (if not all) of the down payment is paid up front and is not refundable. Safest route to go if your credit is not sufficient at this time, is a straight out rental and if at the end of your lease agreement you decide to buy and have your financing ready to go - have a Realtor or attorney to write up the purchase for you.

0 votes
Bill Eckler, Agent, Venice, FL
Fri Oct 26, 2012
Hi Caren

This avenue is one that many of today's buyers, with stressed credit, feel is the best option. The specifics of each purchase can vary greatly but the one most consistant issue that remains is that buyers that enter into these arrangements usually "over pay" for their purchase because they are absent the power of true negotiations.

In the event you do find the right and perfect opportunity it would be advisable to have an attorney review the document relative to your needs prior to signing it.

Good luck,

0 votes
James Gordon…, Agent, Hamilton, OH
Thu Oct 25, 2012
Wide open and a great chance for a tenant prospective buyer to lose a lot of money. Rent until you can buy and you will not be out your option fee.
0 votes
James Deskins, Agent, Worthington, OH
Thu Oct 25, 2012
Get an attorney. Lease-purchases are VERY tricky and are not standard. If you don't know what you are doing you could get in a bad situation. Even if you have a Realtor, get an attorney. If lease-purchases are written incorrectly can be a big win for the seller and big loss for a buyer.
0 votes
Ron Thomas, Agent, Fresno, CA
Thu Oct 25, 2012
You are desperate!
Your Credit or Finances, or both, will not allow you to go the conventional route:
You need the Seller to help you out!

The Seller will know it, and you are going to pay dearly for this service:
There aren't too many altruistic Sellers out there.

The terms that can be written into a Lease/Option can be dangerous to you:
How long is the Option period?
How much money are you putting in to the Option?
What happens if you are not able to execute the Option?
How do you know what your financial situation will be 2-5 years from now?
How much is the rent in the meantime?
Who will be responsible for maintenance and repair in the meantime?
What will be the Market Value of the home in 2-5 years?
What will be the Selling price 2-5 years from now?

This is the Ultimate Caveat Emptor!
0 votes
Well, actually, we're not desperate. We are able to finance a home. However, this particular home is a bank foreclosure, and a pretty sweet deal, but they have turned down all offers that involve financing. They want a cash buyer. The seller's real estate agent/bank r.e. estate, has found an investor that will buy it for cash to give us enough time to make it qualify for FHA or conventional financing (it has some issues, but my husband is a contractor and they aren't anything major). We have built a house (just the two of us) from the ground up, we have remodeled a 1900 house -- all of it, we know what we're doing construction-wise. It would be a quick turnaround -- 30--60 days, and they are asking for 10% profit (within FHA guidelines for that quick of a turnaround). I have a lawyer. I just want to double-check and make sure we're catching everything.
Flag Thu Oct 25, 2012
Mike Sundberg, Agent, Dublin, OH
Thu Oct 25, 2012
Have an attorney review agreement. Make sure you know how much, if any, of your monthly payment applies to downpayment toward closing when lease time is up and you are to exercise the purchase portion of the agreement. Last is deposit and how will that apply and is there any interest earned on it. In most cases no. Still want to check.
0 votes
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