Misconceptions

• A lease option is not a set-in-stone contract to purchase the rental home but an option to buy. Hence the name lease--option. At the end of the tenancy time, the buyer can opt to move out without purchasing the home. Of course, he will lose any deposits he may have put down to secure the lease option agreement.
  
  

Benefits

• The largest benefit of a lease option agreement for a tenant is that he can rent a house now to purchase in a few years and buy it at current prices. Of course, if prices go down, he would want to renegotiate or walk away from the deal. He also get to try out the house to make sure it is the right home for him. The benefit to the property owner is a better quality tenant who would like to purchase the home but may not have a good credit rating at the time. The property owner can also collect a higher rent that will count as a down payment should the renter go through with the purchase.
  
  

Risk Factors

• For the tenant, there is the risk that they will lose their deposits and rent premiums they paid that they planned to use as a down payment. Should the lease option no go through they will have wasted a bit of money. The truth is that the majority of lease options do not end in a purchase. For this reason, lease options are seen as a predatory practice.
  
  

Time Frame

• Rent lease option agreements are typically 18 months to 3 years, which is long enough to accumulate a reasonable down payment in the form of a rent premium and to clean up a credit report in order to obtain a home loan.
  
  

Expert Insight

• Whether you are a property owner or tenant, you need to make sure that your lease-purchase agreement is well spelled out to eliminate any issues later. Such an agreement should spell out down payment or placing an amount in escrow, the sales price that you should try to predict as a fair price for when you plan to purchase or sell, and how and if rent payment will be partially applied to the down payment.