A lease purchase contract, also known as a rent-to-own agreement, is a type of contract that allows a tenant to rent a property with the option to buy it at a later date. This type of contract can be a win-win situation for both the landlord and the tenant. The tenant gets to lock in a purchase price while renting the property, and the landlord gets a potential buyer for their property.
So, how does a lease purchase contract work? Let`s break it down.
First, the tenant and landlord agree on a purchase price for the property. This price is typically set at the beginning of the lease and is usually higher than the current market value of the property. This is because the landlord is taking on the risk of the property not selling at the end of the lease. The higher purchase price also allows the tenant to build equity in the property while they are renting.
Next, the tenant and landlord agree on a lease term. This is typically anywhere from one to three years. During this time, the tenant pays rent as usual, but a portion of that rent goes towards the purchase price of the property. This is called a rent credit. The rent credit is usually around 25% to 50% of the monthly rent and is applied towards the purchase price at the end of the lease term.
Once the lease term is up, the tenant has the option to purchase the property at the agreed-upon purchase price. If the tenant decides to purchase the property, they use the rent credits they have accumulated to reduce the purchase price. If the tenant decides not to purchase the property, they forfeit the rent credits they have accumulated.
It`s important to note that the tenant is not obligated to purchase the property at the end of the lease term. If they choose not to purchase the property, they can simply move out and forfeit the rent credits. Additionally, if the tenant is unable to purchase the property at the end of the lease term, they must move out of the property.
In conclusion, a lease purchase contract can be a great option for both landlords and tenants. It allows the tenant to build equity in a property while renting and gives the landlord a potential buyer for their property. As with any contract, it`s important to read and understand all of the terms and conditions before signing. If you`re considering a lease purchase contract, it`s always a good idea to consult with a real estate attorney or professional.
