What Is a Lease Purchase?
A Lease Purchase is the combination of a lease agreement and a purchase & sale agreement with a delayed closing date. Buyers, are given the term of their lease (usually 1 to 3 years) to fix up their credit, save for a down payment, increase there income and qualifying ratios, and to otherwise, close on the transaction. The documents used are very similar to those of a regular purchase and sale. The only differences are the possession issues (addressed by the lease agreement) maintenance and repair issues, and the scheduled date of closing which can come anytime during the lease period. All of the common items addressed with a traditional sale are addressed in the Lease Purchase Agreement including price, closing costs, financing, inspections, and disclosure requirements.
How Does a Seller Benefit from a Lease Purchase Arrangement?
1. You Receive Full Price For Your Property. Tenants who buy on a Lease Purchase seldom negotiate hard on price. Because of the limited supply of Lease Purchase properties available on the market, you have distinct advantage in the pricing of your property. Also, because the value of your property is likely to increase over the period of the lease, you can often negotiate price based on how much you expect the property to be worth when the seller actually closes on the purchase.
2. Leases are Longer. A traditional lease may only last for 12 months. However, a lease purchase tenant/buyer may need 1 to 3 years to buy. Longer leases eliminate the expenses that accompany vacancies. When the tenant buys, they pay rent right up until the date of closing, and if the tenant fails to close, you have had a long term tenant.
3. Maintenance Expenses are Reduced. Unlike a traditional renting situation, in a Lease Purchase arrangement, maintenance and repairs can be passed on to the tenant/buyer as additional consideration in entering into the purchase and sale of the property. It is also in the tenant’s best interest to keep the property in good condition because they are going to be the future owner. This fact alone can save you plenty of money and grief over the term of the lease.
4. Deposits are Larger. In a traditional lease you receive a first month’s rent and security deposit. Under a Lease Purchase you also receive a nonrefundable earnest money deposit which is usually between 1% and 5% of the purchase price. This larger deposit helps ensures that the tenant will pay their rent on time and keep the property in good condition. When the tenant closes on the property the tenant will be credited with their security deposit and earnest money deposit.
5. Lower Closing Costs. A Lease Purchase tenant is usually not thinking about their closing costs when negotiating the purchase and sales agreement because these costs will be incurred at a future time. You benefit at closing by not having to pay those traditional 2% to 5% of the Buyers costs at closing.
6. Lease Purchase Tenants Take Better Care of The Property. Because the tenant anticipates owning the property in the future, it is in there best interest to take care of the property. Ongoing maintenance of the property by tenants ensures that they get a higher appraisal on the property and thus increases their ability to buy it. Often times, tenants who for some reason, are not able to close on the property will actually leave the property in better condition than when they first occupied it!
7. Great for Fixer Uppers. In addition to an upfront earnest money deposit, you and the tenant/buyer can agree as to needed repairs. Because tenants often have the skills and the talents to work on and fix up properties, you may be able to agree to certain repairs that are to be made to the property. These needed repairs can be in lieu of or in addition to their earnest money deposit. These repairs can benefit both you and the tenant/buyer.
8. Sell With Fewer Costs. With a Lease Purchase, homes sell faster thus eliminating vacancy and holdover costs. Also, you probably will not need to complete all the repairs as you would in a traditional home sale.
9. Better Timing. Usually, selling a home is a catch 22. Do you buy a new home first and risk having a vacant home and making double mortgage payments for a period of months? Or do you sell first, and potentially rush the purchase of your new home and face the prospect of having to move twice? Lease Purchases eliminate this catch 22 situation. Buyers and sellers can negotiate a a date of occupancy that benefits both parties. Both buyers and sellers can make there plans based on a specific date of occupancy. This way both buyers and sellers can minimize their transition costs from moving from one home to the next.
How Will My Home Be Marketed?
Your home will be marketed as a traditional listing on the MLS. We will also include the phrase "Lease Purchase Available" in the remarks section of the MLS listing so that it will be visible on all MLS search engines used by buyers and their agents. We can also create a lease listing in the mls, thus giving you twice the mls exposure. However, we do not eliminate the buyers ability to purchase using conventional methods. We just want to give buyers the option to purchase your property as either a traditional sale or by lease purchase. In fact, many buyer's go into the purchase process believing they can only purchase your home through a lease purchase arrangement. Buyer's then find out they can qualify to purchase your home through conventional means when at first believed that they could not.
Are There Any Drawbacks To Using a Lease Purchase?
As compared to a traditional sale, there are a few potential drawbacks described below:
1. You may have to wait a little longer to cash out your equity. But when you Lease Purchase your home you are trading a smaller check today for a larger check tomorrow. Or to put it another way, if you have little to no equity in your home, a lease purchase arrangement can save you from having to bring cash to the closing table because of all of the traditional fees and closing costs are reduced or eliminated.
2. The tenant could leave in the middle of the night leaving you looking for a new buyer. However, if this occurs, the tenant has forfeited their earnest money deposit and their rental security deposit, leaving you the opportunity to collect two more checks. This could also leave you the opportunity to increase the purchase price yet again if the home has appreciated in value. This could be a good problem to have!
3. The tenant could trash your home. Because tenants have earnest money as well as a security deposit invested in purchasing the home, it leaves this scenario to be unlikely but possible. Often times though, because the tenant had an interest in purchasing the property, they may have fixed it up when they had initially anticipated on completing the purchase.
What Will It Cost Me To Lease Purchase a Home?
The costs are similar to that of a traditional sale and a traditional rental. There is a leasing fee equal to the first months rent when the lease purchase documentation is signed. This is an upfront fee for negotiating of the lease on your home. When the transaction closes there is a 6% sales commission payable to Georgia Choice Realty at closing. You do not owe the 6% sales commission unless the transaction actually closes.
Why Should I Use Georgia Choice Realty to Lease Purchase a Home?
♦ We Provide you with all of the services included in our Georgia Choice Listing.
♦ We represent you fully from contract through closing. We handle all of the paperwork involved in the transaction.
♦ We can pre-screen tenants/buyers to be sure only qualified buyers are able able to lease purchase your home.
We market your home aggressively in the MLS. We can create both a rental listing and a for sale listing with both of the Atlanta MLS's.
How Do I Get Started?
♦ Give us a call at 678-261-4901 to discuss your selling situation, answer questions, and/or to schedule a listing appointment.
♦ Complete Our Seller Profile Form Now By Clicking Here. We will call you within 24 hours to confirm time and date.
♦ We come to your property to complete the listing paperwork and to photograph your home. Your home will then be uploaded into the multiple listing services of your county within 1 business day of the listing appointment!
