Field Guide to Lease-Option Purchases
(Updated September 2014)
Lease-option agreements* are common when acquiring personal property—such as dishwashers, washing machines, automobiles, and TVs—but are not as common for the acquisition of real property. Lease-option agreements are generally utilized in residential real estate acquisition when a home buyer would like to purchase a home, but needs to repair her credit rating in order to secure a promissory note and mortgage. The lease-option agreement allows a buyer to lease a property for a set period of time—typically between 1-3 years—with the option to buy the property at a contractual future date. “The negotiated option is typically a percentage of the price for example, one to five percent, and is credited, along with the rents and a rent premium, to the purchase price if the lessee buys the property. If the option to buy is not exercised, the buyer will lose the option fee and rent premium.” (Real Estate Law, p. 227). Read the articles below to learn more about this alternative real estate financing option. (K. Stockert, Information & Web Content Specialist)
*Also known as lease-to-own, rent-to-own, lease/purchase, lease with an option to purchase, or real options.
Q - ProQuest articles available for NAR members only. Password can be found on the ProQuest/Find Articles page.
Lease to Own: The Basics
How do Lease Purchase Agreements Work? (SFGate, n.d.).
Sale-Leaseback Transactions: Price Premiums and Market Efficiency, (Journal of Real Estate Research, Apr-Jun 2010). Q
How Do I Get a List of Rent to Own Homes? (realtor.com®, July 25, 2012).
Will I Be Able To Find A Rent To Own Property In Rhode Island? (realtor.com®, May 24, 2012).
How Do I Find A Rent To Own Home In Bristol, Pennsylvania? (realtor.com®, May 10, 2012).
How Do I Find A Realtor To Explain The Rent To Own Option? (realtor.com®, Apr. 6, 2012).
Lease-to-Own Contracts, (UCLA School of Law, 2012).
Lease options are back: proceed carefully, (Realty Times, Oct. 25, 2011).
Informal Homeownership in the United States and the Law, see page 132. (University of Texas School of Law, 2010).
How lease-options benefit sellers, buyers ... and their REALTORS®?, (CRE Online, n.d.).
Thought about lease-to-own transactions?, (REALTOR® Magazine - Speaking of Real Estate blog, Aug. 6, 2009).
New Real Estate Law, (International Financial Law Review, Mar. 2007). Q
Renting to Own, (realtor.com®, n.d.)
Case Studies & Examples
A Valuation Framework for Rent-to-Own Housing Contracts, (The Appraisal Journal, Summer 2014). Q
Lease-to-own deals offer options in sluggish Tampa Bay housing market, (St. Petersburg Times, Oct. 23, 2011).
Can I get a lease option with bad credit?, (realtor.com®, May 5, 2011).
A Growing Housing Imbalance, (Mortgage Banking, Oct. 2011). Q
Raising Capital through Sale-Leasebacks, (Public Management, June 2010). Q
Rent-To-Own Real Estate Full Of Pitfalls, (Forbes, Mar. 19, 2010).
Lease Buyout Portion of Purchase Ruled Deductible, (Journal of Accountancy, Dec. 2008). Q
Application of Real Options Analysis to Technology Portfolio Planning: A Case Study, (The International Journal of Quality & Reliability Management, 2008). Q
Individual Taxation Developments, (The Tax Adviser, Mar. 2012). Q
Comparing Accounting and Taxation for Leases: Certified Public Accountant, (The CPA Journal, Apr. 2009). Q
Tax Considerations for Buying and Selling Property with a Burdensome Lease, (Journal of Accountancy, 2009). Q
Lessee Deducts Excessive Cost of Buying Rented Property, (Practical Tax Strategies, Oct. 2008). Q
Government Publications & Programs
State Agency Lease/Purchase Program, (Washington State Treasurer’s Office, n.d.).
Recent State Agency Lease/Purchase Interest Rates – Real Estate Only (Washington State Treasurer’s Office, n.d.).
Definition from Washington State:
“Lease/Purchase Obligations (Real Estate) — Lease/purchase obligations are contracts entered into by the state which provide for the use and purchase of real or personal property, and provide for payment by the state over a term of more than one year. For reference, see RCW chapter 39.94 "Financing Contracts." Lease/purchase obligations are one type of lease-development alternative.” (Financial Budget Instructions Glossary of Terms, Washington State Office of Financial Management, n.d.).
LFC Hearing Brief, (New Mexico Legislative Finance Committee, Dec. 2007).
Instructions for the Lease/Purchase Analysis Modeling Tool, (Idaho State Leasing Dept. of Administration, n.d.).
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
Smart Guide to Real Estate: Step by Step Rent to Own, (Kindle and EPUB)
Investing in Rent-to-Own Property, 2010 (ePub)
Books, Videos, Research Reports & More
The resources below are available for loan through Information Services. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Information Services at 800-874-6500 for assistance.
Who Says You Can’t Buy a Home! HG 2040.5 R25w (2006).
Field Guides & More
These field guides and other resources in the Virtual Library may also be of interest:
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