Lease Purchase Frequently Asked Questions (FAQs) for Landlord/Sellers

Questions regarding the terms of the lease purchase agreement have been answered as if the landlord/seller were using the paperwork provided by this website. Landlord/seller may use a different agreement with different terms.

Question: I just want to rent or sell my home, should I bother advertising here?
Answer: If your ultimate goal is to sell a house, a lease purchase is a great way to do it, without paying any real estate commissions. It is also a great way to move a house in a slower market. If you just want to rent it out, a lease purchase will give you additional security in terms of a non-refundable option consideration and committed tenants, but they will have an option to purchase it!! But, if you don't want to ever sell it, then perhaps this is not the place for you to advertise.

Question: What are the chances of the tenant/buyer actually buying my home?
Answer: This depends on the qualifications of the tenant/buyer you accept, and the loan they are able to obtain. The lease purchase will attract as many as 3 times potential tenant/buyers when compared to just trying to rent or sell your home. Now, with the lending market more difficult to navigate, many good canidates can not purchase using traditional methods, so they are turning to alternatives like the lease purchase.

Question: How long is a typical lease purchase agreement?
Answer: That's your choice. We recommend a one year lease purchase, with a possible extension of a 2nd year if you like the tenant/buyer.

Question: If the rental amount is $1000/mo and I'm giving a rent credit of $300/mo, does that mean I'm actually only receiving $700/mo in rent?
Answer: No. The tenant/buyer pays $1000/mo in rent. When the tenant/buyer is able to purchase your home, you'll be crediting $300/mo back to the tenant/buyer at closing ($3,600 within the first year).

Question: If the rental amount is $1000/mo and I'm giving a rent credit of $300/mo, do I actually have to escrow the $300/mo in an "escrow account"?
Answer: No, you can deposit it just like any other money you deposit. You are not required to escrow the rent credit. You will be crediting $300/mo back to the tenant/buyer at closing ($3,600 within the first year) when the tenant/buyer is able to purchase your home,

Question: If I decide to lease purchase for 3 years, do I have to provide 3 years of rent credit ($300x36=$10,800)?
Answer: That's your decision. I recommend you provide one year's worth of rent credit ($3,600 in this example) and let it "carry over" to the next year, but do not provide rent credit for the 2nd year. But for more incentive, you may want to provide the 2nd years rent credit. That's up to you.

Question: If the tenant/buyer is able to purchase within 3 months, do they only get 3 months of rent credit?
Answer: No. Our contracts are designed for the tenant/buyer to get the full year's rent credit regardless if they purchase in one month or one year. Think of it as a great benefit to you if they purhcase sooner in the lease term.

Question: I found a tenant/buyer who can purchase within 3 months, should I only sign a three month lease purchase agreement?
Answer: You can sign for however short a term you both agree to. But I recommend it is long enough to secure financing, and any problems that may arise. I usually have lease purchase agreements go for a minimum of 6 months, but the tenant/buyer can execute their option to purchase any time within the lease term. .

Question: My tenant/buyer was not able to purchase the home after one year. Should I take another option consideration fee? Does the other option consideration expire? Should I extend the agreement?
Answer: Officially the old option consideration does expire. Each situation is different, but I think it's fair to extend the original lease purchase agreement and credit the tenant/buyer their original option consideration. It's up to you and the tenant/buyer if you want to charge an additional option consideration. Extension of the agreement will depend on how soon your tenant/buyer is able to purchase. You can also change the terms of the agreement (i.e. increase the rental and/or sales price) when you extend.

Question: Will the rent credit go towards my tenant/buyer's down payment?
Answer: Usually rent credit will be credited against your closing costs, not the down payment... Although closing costs are similar to a down payment because it is money the tenant/buyer must pay when buying the home. But if the rent credit total you are providing to the tenant/buyer is higher than their closing costs (rarely the case), the rent credit may not go towards the tenant/buyer's down payment... it would reduce the tenant/buyer's purchase price. They could use the "excess rent credit" to "buy down" their loan rate. Typically only the option consideration goes directly towards the down payment.

Question: The rental amount the tenant/buyer is paying me matches my mortgage payment, taxes, homeowners insurance, and/or homeowner's/condo fee. Should I just have them pay it directly?
Answer: No. It could be misconstrued as an installment sale or contract for deed. This may give your tenant/buyer equitable interest in the home, which would make it difficult to get them out of the home if they are unable to perform. Consult a local real estate attorney for details.

Question: Who gets the tax write off during the lease purchase agreement?
Answer: Technically the lease purchase agreement is a lease until the tenant/buyer exercises their right to purchase the home, so you would still get the tax write offs until the tenant/buyer purchases the home. As always, talk to your accountant before entering into any agreement.

Question: Am I obligated to sell the home to the tenant/buyer during the lease term?
Answer: Yes. The tenant/buyer has the exclusive right to purchase the home, as long as they abide by all the terms of the lease purchase agreement.

Question: Why don't I just have a real estate agent lease purchase my home?
Answer: Most agents have no experience lease purchasing homes. They are trained to either lease or sell a home. We are not real estate agents. We are a real estate investment company. We originally designed the lease purchase paperwork for our benefit to sell our investment properties. We have specialized paperwork with incentives for the tenant/buyer to pay on time, perform minor maintenance, and purchase the home. A real estate agent's paperwork would not have that. They will try to combine a lease and purchase contract together and miss out on the incentives listed above, and you would still be responsible for paying commissions.

Question: What kind of commitment does a tenant/buyer have to purchase my home?
Answer: Although a lease purchase sounds like an obligation for the tenant/buyer to purchase the home, it isn't. After all, if someone doesn't have the ability to purchase or doesn't want to purchase a home… it's difficult to force them to purchase. The non- refundable option consideration shows the commitment a tenant/buyer to purchase the home, although they are not obligated to exercise their right to purchase.

Question: I'm a licensed real estate agent. Can I list my properties on your site?
Answer: Yes. All contacts will be directed to you.

Question: Can this website help me qualify my tenant/buyer?
Answer: Not directly. But there are some good tips on how to qualify them in our course.

Question: Should I take a security deposit on top of the option consideration?
Answer: Typically "No", but you should ask a real estate attorney if some form of security deposit is required in your area by state law. If it is, take the minimum security deposit and the remainder in the form of a non-refundable option consideration.

All information on this page is deemed reliable, but not guaranteed.
Creative Asset Management, Inc reserves the right to change their applicaiotn and review process at any time.