Q: Where can I get advice and information on doing a Lease Purchase option for selling our house. We have friends that are interested in buying our house and want to do a lease purchase. We need to ensure that both us as the sellers and they are buyers negotiate a fair and legal deal. Do you have advise on resources to help us? We don’t really want a real estate agent involved and have to pay commissions, but we would definitely like to make sure its legal and equitable through an real estate attorney or be willing to pay an “advisory” fee.
A: You don’t need an agent, but you should hire a real estate attorney (go to gabar.org for a referral or call the Atlanta Bar Association) to help you do the paperwork and make sure your interests are protected.
I have written about lease/purchases in my book 100 questions Every Home Seller Should Ask (buy it online but make sure you get the current version with the current tax information) or borrow it from your local library. You may be able to find information on my website as well.
Typically, with a lease-purchase, you agree on the price upfront and the buyer pays a nonrefundable option fee. Then, a portion of the rent is credited toward the down payment. When the option expires, the buyer typically has the option to renew the option to purchase for another nonrefundable fee. At any time, the buyer can purchase the property for the previously agreed-upon price.
Q: I am 71 and have 2 rentals that help us with our retirement. It is becoming hard for me to keep the properties up. I was thinking of renting with a option to buy for 10-12yrs and give them credit of $200.00 per month and they would also be responsible for any maintenance during that time. At the end of that time they would have to obtain a regular mortgage. Either from me or some one else. That way we should not have to pay cap gains tax until we have finalize the deal . The question is, would this be a way of doing this?
A: I wouldn’t do a 10-year lease with an option to buy because it’s too long a time period. I’d do a 2-year or even 3-year lease with an option and then renew the option. You can still give a larger percent rent credit in exchange for the renters doing the maintenance on the property.
A lot can happen in 2 to 3 years, and you may want to have the cash in a lump sum, if you decide to move or if your circumstances change dramatically due to illness.
Q: I’ve been advertising my home in the paper and I received a call today from an individual who wanted to buy my home as an “investor.” I asked her if she was an agent and she said no. She wanted to buy my house as a lease with a purchase option. I don’t know anything about this and she said she would be basically selling my house for me. I’d have a monthly income plus at the end of the period I’d get my asking price plus several thousand more. Is this a deal or something I might investigate?
A: You can check to see if she is an agent by running her name through the Georgia agency that regulates real estate agents. You can simply call and ask if this person is licensed as an agent or broker in the state.
Here’s how a lease option normally works. Someone signs a lease (you’re renting the property) and puts down a non-refundable option fee (like $1,000). You credit a portion of the rent each month (anywhere from 0 to 100%) toward the down payment (it’s usually a first-time buyer who does this). At the end of the option period, the renter decides whether or not to buy the home at a prearranged price. If they don’t want to pick up the option, they can pay another non-refundable option fee and lease for another period.
If they decide not to buy your property, you keep the option fees and the renter walks away.
That’s how it’s supposed to work. Only you can determine whether or not this is a legitimate deal.