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Realty Services has a proven track record increasing investor liquidity and
helping owners sell their homes with our creative lease-to-own program. This
program is based on the traditional lease-purchase, a transaction through which
a resident leases a home until they are equipped to buy it. The program can also
be called lease option or rent to own.
Lease Purchase Overview
A lease purchase is a contract between a buyer and seller to sell a
property with a delayed closing. The contract forms are the same used in a
standard selling situation. All of the issues of a purchase contract are
addressed including price, financing, taxes, title exam, warranty deed and
disclosures. No detail is ignored. The closing date, maintenance and possession
issues are the only items that are different. The closing date is agreed upon by
both parties. The term is usually 13 months to three years. The possession issue
is addressed through a separate lease that is attached as an exhibit to the
contract.
Personal Experience with Lease Purchases
The
industry has a poor closing experience with Lease Purchases. Combined with the
delayed compensation problem, we began to understand why agents discourage
owners from using Lease Purchases to sell their homes. Agents would rather you
wait for the right buyer and close 60 days later no matter how long you have to
hold on and make mortgage payments. They want a contract to close soon so they
can get paid.
Realty Service's experience with Lease Purchases has been
very different. Over the past thirty years, we have sold many properties through
this method and continue to find Lease Purchases an effective tool for selling
properties quickly.
How Does A Lease Purchase Benefit The Owner?
- Leases are longer: A regular resident may leave after 12 months. A Lease
Purchase resident needs 1 to 3 years to clean up their credit, save up the down
payment or gain the employment tenure necessary to meet lender requirements.
Long leases eliminate the expenses that accompany vacancies. If they do not
close, you have had a long-term tenant.
- Maintenance Expenses are Reduced: In a Lease Purchase agreement, the
resident takes responsibility for all maintenance. This can save you plenty of
money and grief.
- Deposits are Larger: While an ordinary tenant deposits one month's rent as a
security deposit, a Lease Purchase resident typically deposits two to four times
that amount. This money is called NON-REFUNDABLE OPTION MONEY and is disbursed
at time of move in. When the tenant closes, his deposit is credited toward the
purchase price.
- You Receive Full Price: Residents who buy on a Lease Purchase are seldom
experienced negotiators. They are not shopping hard for value because their
options are limited. They usually pay full retail price.....or more.
- Closing Costs are Lower: A Lease Purchase resident is not thinking about
closing costs when negotiating a Lease Purchase. They are focusing on short term
issues and frequently ignores these costs. You win at closing by three to five
thousand dollars as you do not pay normal seller closing costs.
- Better Care of Property: Generally, residents will take better care of the
property if they anticipate owning it. Realty Services still inspects regularly
to insure proper care of the property.
- Sell Without A Vacancy: One big expense of selling a home is the cost of
getting it in selling condition and keeping it that way until closing. Mortgage
payments, insurance, taxes, utilities, paint, carpet, lawn care and the risks
associated with an empty house can cost plenty. These costs are eliminated when
a resident buys using a Lease Purchase. They pay rent right up to the day of
closing and there is no vacancy.
Frequently Asked Questions
Q. Do residents ever
fail to maintain the property?
A. Yes. Occasionally, even though
they agree to fix all problems they let things go and damage to the property
increases due to neglect. Realty Services does regular property surveys to
monitor physical condition.
Q. What about Rent Credit?
A. Occasionally, residents negotiate hard for some of the rent to
apply to their down payment. This helps them build the down payment and allows
them to close. The only time rent credit affects you is at closing. Like option
money, it shows up as a credit to the resident as previously paid money. If they
fail to close, they get nothing back. Only you can approve rent credit.
Q. Who is responsible for insurance?
A. You
must keep a landlord policy in effect during the lease period. This policy
covers the house and liability issues. Renter's insurance is an option for the
Resident.
Q. What if they are ready to close and we cannot?
A. If you have a title problem or refuse to close, you have
defaulted in the contract. Most residents are willing to give you a little time
to clear up the problem. If you cannot give them what you promised ( good title
), they will get mad, and come after their deposit. They will succeed. Do not
contract to sell if you cannot deliver good title.
Q. Is it
easier to Lease Purchase than sell?
A. Yes. Offering your home
for Lease Purchase exposes it to a larger segment of the market. The house will
appeal to a larger group of buyers you cannot reach using the "For Sale"
approach. You will solve your problem quicker using a Lease Purchase program. A
Lease Purchase is a contract to sell with a delayed closing date.
Q. What are the Chances of a Lease Purchase Closing?
A. Realty Services has had good success with closing Lease
Purchases we have structured. We went through our learning curves and corrected
the mistakes. Experience is a great teacher. We are careful not to create false
hope for either party by making deals that have little hope of closing. We do
not hit 100%, The good news is, if you look at the benefits of the Lease
Purchase, there is no downside for the Owner. You win, even if the Tenant fails
to close.
What are the costs?
The fees for a Lease Purchase are the same
as a regular lease and sale. Realty Services gets its Procurement Fee for
renting the property, and a Monthly Management Fee for managing it. We manage
Lease Purchases the same way we manage our other properties except for
maintenance. Commissions for the purchase and sale agreement are the same as for
any brokerage agreement. As for licensed brokers, we sell many homes to
residents. We get our commissions as you get your equity.
What
happens if the Resident Fails to Close?
We find that two out of five
do not close for one reason or another. Several months before the closing date,
we will contact the resident and discuss their intentions. If they need more
time, we may be able to extend the closing date. Again, you are in control of
this so you will make these decisions. If they plan to move, there is not much
we can do about it. They forfeit their deposit and will still be responsible for
leaving the property in good condition. We will begin marketing according to
your instructions and complete a normal move-out inspection. Often, the property
is returned in better condition than when the resident moved in. Occasionally,
the resident makes improvements that stay behind and actually increase the
property's value.
There is no downside to a Lease Purchase.
You win whether they close or not!
Why do I need
Realty Services to Manage a Lease Purchase?
Getting contracts signed
is just the beginning.
Lease Purchase does not eliminate the management
problems, it simply puts a resident on a path toward buying. Sometimes residents
fail to pay rent, some bounce checks, others harbor undisclosed pets and let
properties deteriorate. We all want to think they are different than other
residents because they have more money and have signed a purchase agreement. The
fact is, they are still homeowners in training. Some of them have a long way to
go.
Training them is hard work.
Management is needed.
Please Contact Us for more information or to get started with a lease
purchase for your home.
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