Lease purchase options
A good ask the agent question. I've gotten a number of emails recently asking about lease purchase options especially from people who are relocating to the Charleston South Carolina real estate market. Here's my take.
In very general terms, if you are considering a lease purchase option, you give a non refundable deposit on a property that gives you the option to purchase it at a set price sometime in the future and the deposit will be applied to your down payment should you exercise your option. You pay rent for the same specified period of time and a portion of your rent may be applied to your down payment as well. Finally, the eventual sale price of the property is determined at the time the lease purchase contract is written.
Now, what are the advantages and disadvantages and why would either a seller or buyer be interested in doing a lease purchase option?
Generally speaking, a lease purchase is designed for a person who needs some time to get their credit situation straightened out and needs a place to live in the interim. A seller benefits because their house is under contract and the monthly rent collected is (hopefully) enough to cover their mortgage payment. If your house has not sold and you are paying 2 mortgages, then you should consider offering a lease purchase option. I hate to say this but the seller really benefits when the lease option is not exercised because in addition to the monthly rent that has been collected, the big bonus is the non refundable deposit which is retained by the seller. However, if you need the proceeds from the sale of your house, this won't work for you.
So if you are the buyer, if you aren't absolutely positive that this is the home you want to buy one day and you are only looking to rent before purchasing a home, this is not the best program for you to use. Similarly, it is not the right program for someone who is relocating to Charleston and wants to rent instead of rushing to buy in a weekend before they ultimately move here. The rent you are paying each month is not any lower because you have a lease purchase option and could in fact be somewhat higher than market rate.
What about the value of the house; are you going to get a good deal on the purchase price. Not really. The option price is set when you contract a lease purchase. If all current trends continue and prices stay stable, that's OK but if they decline slightly, the option price doesn't go down. Of course, should prices start rising, then the option would become a little more favorable. Except that your negotiating position on price is not as favorable when doing a lease purchase compared to buying a house.
If you are relocating to the Charleston area and don't want to rush into buying, the better approach would be to rent a house for 6 months. Get to know Charleston, spend some time looking around and determine where you want to live. Get listing notifications sent to you for all houses that meet your criteria so you can learn more about the Charleston real estate market.
Once again, a lease purchase is most advantageous to a person who needs some time to get their credit situation straightened out and needs a place to live. It can be an excellent option compared to just paying rent. Please read the contract and understand what you are signing, don't rush now and get burned later.