Important Investor Information
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?
- Do residents ever fail to maintain the property?
- What about Rent Credit?
- Who is responsible for insurance?
- What if they are ready to close and we cannot?
- Is it easier to Lease Purchase than sell?
- What are the Chances of a Lease Purchase Closing?
- What are the costs?
- What happens if the Resident Fails to Close?
- Why do I need Realty Services to Manage a Lease Purchase?
- 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.
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.
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.
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.
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.
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.
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.
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.
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!
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.