Here’s Why You Want To Sell Your House With A Lease Purchase
You may have heard the term "rent-to-own" before.
What you may not have heard are the terms:
"Lease-purchase" and "Lease option."
All of these terms are interchangeable. We'll use the term lease purchase for the purpose of this article.
Although they may not be the traditional way of selling your house, lease purchases are potent tools that homeowners can use.
Lease purchases provide a lot of benefits, of which many homeowners are often unaware.
Let's take a deep dive into why lease purchases are a viable and often lucrative way to sell your house.
You Will Earn More Gross Proceeds Than A Cash Sale
To help demonstrate our first point, let's consider a hypothetical house worth $200,000 that would rent for $1,250.
The homeowner wants to sell it, but also wouldn't mind renting the property for a few years.
Our hypothetical homeowner could list the property for sale on the MLS with an agent for $200,000, and will probably get an acceptable offer.
But will the homeowner make $200,000?
Not even close!
The homeowner is likely to have to pay the below-estimated costs:
Realtor Commissions at 6%: $12,000
Buyer Requested Repairs: $5,000 - $10,000
Buyer Requested Closing Costs: $5,000 - $10,000
City/County Transfer Taxes: ~1% of the sales price at $2,000
Staging: $1,000
Home Warranty: $500
Pre-inspection: $500
Deep Cleaning Cost: $300
Recording Fees: $100
All these costs add up to $36,400, for gross proceeds of $163,600.
On the other hand, let's look at the numbers for a lease purchase.
For our example, we'll say the lease-purchase term will be for 36 months.
Our hypothetical homeowner will earn gross proceeds of:
Sales price: $200,000
Rent $1,250 * 36 months = $45,000
For a total of $245,000 in proceeds minus any associated expenses.
That's a big difference from the estimated gross proceeds from a cash sale.
Patience can undoubtedly pay off.
You'll Collect A Large, Non-Refundable Deposit
One of the most essential parts of a lease-purchase is the option deposit.
As the term implies, an option deposit is what gives the buyer the exclusive right/option to purchase the property.
The option deposit is non-refundable, so anyone willing to put up a sizable deposit will have some substantial skin in the game.
Option deposits are up to the buyer and seller to negotiate. They can be as little as a few thousand dollars or as much as $10,000.
You won't get that substantial a deposit for a regular rental.
You Will Open Up A Reliable, Positive Income Stream
What's one of the best parts of renting out your property?
The monthly income, of course!
Lease purchases by nature allow a property to generate more income than a regular rental.
Why exactly? There are a few reasons. Mostly because:
You do not have to worry about vacancy
There's no high turnover
The buyer is responsible for their own maintenance and repairs. Typically up to a predetermined amount per occurrence
Management fees
All of these expenses add up, but with a lease purchase, they either don't exist, or they are very unlikely.
Your Tenants Will Feel More Like Owners
Unlike a traditional rental, your tenants will feel more like owners of the property.
We all know people take better care of things when they own them vs. when they rent them.
Putting up the large option deposit we spoke about before also helps your buyers feel much more responsibility towards the property than a traditional tenant.
Buyers May Make Improvements To The House
Due to the increased sense of ownership, your tenant/buyers are likely to make improvements to the property.
They might put up fresh coats of paint
They could install new lighting fixtures
Or, maybe they'll repave the driveway
Your contract should specify they need your express permission to make modifications/upgrades to the property, of course.
However, have you ever heard of a traditional tenant performing upgrades to a property at their expense?
It would never happen!
That's the difference between pride in "ownership," and renting.
Buyers Are Responsible For Their Own Maintenance And Repairs
In addition to possibly upgrading the property, your buyers will be responsible for their own maintenance and repairs.
Typically, lease purchases impose a limit of up to $500 per occurrence.
Meaning, your buyers are responsible for $500 worth of repairs for each individual instant of something needing to be repaired.
Should the cost exceed $500, it's the owner's responsibility.
Having the buyer be responsible for their own maintenance and repairs significantly reduces the amount of management necessary for the property.
While simultaneously increasing your net income due to decreased expenses.
You Can Choose The Length of The Lease
The lease term is 100% negotiable between you and the buyer.
However, there are some guidelines you should stick to.
First: You don't want to make the lease term too short. Remember, your buyer needs a reasonable amount of time to build their finances to a point where they can exercise their option to buy the property.
The shortest we've seen lease purchases go for is one year.
Second: You don't want to make the lease term too long, as it may reduce the sense of urgency for your buyer to tidy up their finances.
We typically offer up lease purchases for 36 months. Which we believe is plenty of time for someone to fix their finances to qualify for a loan.
You Don't Have to Pay A 6% Commission
What's the most expensive part of selling your house?
The commissions!
When you sell your house with a lease purchase, you don't have to cough up 6% of the purchase price worth of commissions.
Sure, you can utilize a realtor to help you lease-purchase your house, but you should be able to do it yourself with the help of an attorney for the paperwork.