Exactly what is a lease purchase with option to buy, with regards to real estate? A lease purchase with option to buy is basically a lease to own contract for a piece of real estate. The buyer signs an exclusive contract to have buying rights to a property after a given amount of time. When the allotted time expires, the buyer can do one of two things: buy at the price agreed on when the contract was signed, or don't buy the property and forfeit down payment.

To make this easier, let's take a look at this from a buyer's eyes.

Buyer

Why would anyone use a lease purchase with option to buy for real estate investing? Try risk management. If you were shopping for a home a few years ago (before the market went bad) but were unclear if the area would be hit by recession, you could use a lease purchase with option to buy to pay monthly 'rent' and then wait for the contract to expire. The next step would be to get the property appraised. As a buyer, a lease purchase with option to buy means you do NOT have to buy the property.

So when you look at the home appraisal after a few years, you compare the current market value to that of the agreed upon purchase price from the lease purchase with option to buy. If the home is worth more than what you agreed, you can purchase and gain instant equity. But, if the property went down in value, then you can leave the deal with no ties and are only out the down and monthly payments.

How about some real numbers to see how this works? You sign a lease purchase with option to buy a home for 100,000 after a 3 year contract. You put 3 over the last three years! Suddenly you have exclusive rights to buy the home for 10k below the current market value thanks to your lease purchase with option to buy! Since you already put 3) toward the real purchase! Now, 10 down and a little thriftiness you have gained a 15.4 annual appreciation on your home so you offer a 1 year purchase price of 200,000+3)+3 is really $6k. But, isn't that the same as the down payment for the option?! So if the buyer does NOT buy the house after 1 year, you STILL get the 3 anyway! Lease options are a win-win situation.

You get your % regardless of the market value and the buyer gets their purchase mitigated for risk at the same price while getting a potentially substantial gain in equity!

Conclusion:

Lease option real estate investing is a rent-to-own strategy that works through signing a contract for exclusive buyer privileges at the end of the agreed upon time period for an agreed upon amount. This contract can VERY easily work to the benefit of both the buyer and the seller, and allows for property sales at your asking price even in recessed markets.

Lease purchase with option to buy real estate investing should definitely be considered by either the investor, the buyer, or both!