Lease Options

A lease option can provide some flexibility if you are looking to make your property more profitably, but it's not always the right fit for every investor. Below, we explore what a lease option is, how it works, and the factors to consider when deciding if it’s the right choice for your investment strategy.

What Is a Lease Option?

A lease option, also known as a lease with the option to buy, is a real estate agreement that gives tenants the opportunity to purchase the property once the lease term ends. As part of this contract, the tenant pays an option fee upfront for the chance to buy the property later. Additionally, a portion of the rent includes extra monthly payments that go toward the down payment.

This arrangement also prevents the property owner from selling the home to anyone else during the lease term. However, if the tenant decides not to purchase the property at the end of the lease, they forfeit the option fee and any money put toward the down payment.

Lease Option vs. Lease Purchase Agreement

It's important to distinguish between a lease option and a lease purchase agreement. A lease purchase agreement obligates both parties to complete the sale at the end of the lease. In contrast, a lease option gives the tenant the choice, but not the obligation, to buy the property.

For investors, a lease option can be a strategic way to secure a property without immediate commitment, providing the potential for future acquisition while generating rental income in the meantime.