Lease Purchase Agreement

On May 30, 2011, in Sellers, by David Monsour

I’m currently working a deal that is a lease purchase.  It seems like a win win to everyone but in reality time is a huge enemy of all home sellers in the Gettysburg PA area.   Lease purchase agreements are commonly used when credit repair is taking place or if the buyer is looking to build equity in the home.  Equity is a by product of paying down what is owed or a result of appreciation of the asset.  Seems simple enough and makes complete sense in a normal market, unfortunately the current real estate market is far from normal.

From the buyer prospective it’s an absolutely fantastic scenario.  Rent the home and purchase when able.  However all home loans are going to require appraisals.  So if the value of the home falls the buyer is going to reap the benefits of this at the time of purchase.  If settlement is one year out it could mean a significant reduction in price.  There is some monetary sacrifice in the form of rent but that is simply like paying a mortgage without the tax benefits or equity build-up.

From the seller prospective.  It’s a harder sell right now for a seller, but it’s also better than the alternative which is a home that is languishing on the market unoccupied and losing value by the day.  Vacant homes tend to end up in ill repair.   Look at foreclosed homes for example, they sit empty, get wet, leak, and nobody knows about it.  The home basically deteriorates over time.  This happens to privately owned  vacant homes as well.  A tenant, while perhaps not a desirable as a buyer, will be there to look after the property.  A tenant with a potential interest in the property will also take better care of the property during their tenancy prior to settlement.  The owner will also have this time to collect rent to help offset the loss in equity as the value drops.  It’s not 1:1 but, hey, it’s better than nothing.  It’s unfortunate that sellers have to accept these terms but IF you have a buyer in today’s market it’s important to do whatever it takes to keep that buying interested in your home.

So lease purchase agreements aren’t as good as sales contracts but at least we are trending in the right direction and it should result in an eventual sale.

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