Are you doing this to get out of making the payment on your condo? Do you think the "greater fool" theory will come into play on this lease/option and a buyer/tenant will be willing to undertake YOUR headache? What I'm getting at is there are many scenarios for doing what your trying to do and most of them simply wish to transfer a payment structure the owner can't pay to someone who can't pay it either but who goes after the carrot of homeownership and attempts to make the payments. Delaying the inevitable will not solve most homeowner's problems today.
We have also done an upfront option payment and then the tenant pays fair market rent.
I have directly been involved w/ lease options that have converted to a sale, but the bank refused to count the tenant's above market rent payments toward the downpayment. This nearly prohibited the buyer from being able to qualify as they did not have additonal funds for down payment. It wasn't that the seller wouldn't credit the money, it could not be counted toward the down payment per the lender's assessment of what the lender thought was fair market rent.
There are many different ways to do the lease option. I won't give you all the details of our deal in this forum but we first agreed upon a sales price of the home then we agreed upon the monthly lease payment. We ended up getting a credit to go toward our downpayment plus we made option payments every few months through the term of our lease.
Not everyone who does a lease option has bad credit! Sometimes it is as simple as they are not sure of the area OR they simply need help with the downpayment. Hope this info helps!
If an owner occupant buyer can't qualify for the loan today, it is pretty unlikely they will qualify for a loan in two years. -
Many years ago, in the previous century, owner occupant buyers needed large down payments and It used to be that down payments were the main obstacle to home ownership. In the past ten years , many zero and low down payment programs have developed for qualified home buyers.
(investors and unqualified buyers still need down payments)
So since the down payment is no longer the problem, why do unqualified buyers that can't get a home loan think they want a lease option. One reason is if they have terrible credit, and they think it will improve. Okay, but Steve, do you want tenants with terrible credit?
Another reason they might not qulaify for a purchase loan is that they do not have the income to make the payments. --- Steve, that means they don't have the income to pay your rent plus an option fee.
Very few lease option agreements turn into sales. I advise pursuing a pure rental strategy or a pure sales strategy. You could still consider the lease option strategy , if the prospective buyer or tenant suggest it.
They can collect an "option deposit" up front and they can collect above market rent from a "prospective" buyer.
Chances of a buyer making good on a lease option in this market is slim to none.
People generally look to lease options due to current bad credit. Chances are, if they have bad credit now, they will still have bad credit two years from now.
The owner/investor gets to keep the lease option deposit and the difference of the higher rent payments if the lease optioner doesn't exercize the option in the time agreed to.
You'll see more of these as people lose their homes through foreclosure. These people have to have somewhere to live, they still want to own a home and they don't want to just pay rent. They want to at least "sniff" homeownership.