How Does A Lease Purchase Benefit The Owner?

Leases are Long: Regular tenants will sign a 12 month lease. A Lease Purchase tenant needs two to three years to clean up 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 and reduced vacancy time.
 

 Maintenance Expenses are Reduced: In a Lease Purchase agreement the tenant takes responsibility for all maintenance. This can save you money and grief.

Deposits are Larger: While an ordinary tenant deposits one month’s rent as a security deposit and is fully refundable and held in the broker’s escrow account. A Lease Purchase tenant typically deposits two to four times that amount. This money is called (NON-REFUNDABLE) EARNEST MONEY and is disbursed at time of move in. When the tenant closes, his earnest money is credited toward the purchase price.

You Receive Full Price: Price is always negotiable but when buyers get “terms” (i.e. two years to close) they seldom negotiate on price. Since they have fewer houses to choose from they are less focused on price and more focused on terms.

Closing Costs are Lower: Closing costs are always negotiable. When you are offering “good terms” you seldom have to pay closing costs. Keep in mind paying some closing costs improve the chances of closing.

Better Care of the Property: Generally tenants will take better care of the property if they anticipate owning it. They tell neighbors they are the owner and settle into the community. Crown still inspects regularly to insure proper care of the property.

Sell Without a Long Vacancy: One big expense of selling an investment 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 you plenty. These costs are dramatically reduced by getting someone in quickly. They pay rent right up to the day of closing and there is no vacancy.

Frequently Asked Questions About Lease Purchase

Q. Do Tenants ever fail to maintain the Property
A. Yes. Occasionally, even though they agree to fix all problems, they let things go and damage to the property occurs due to neglect. Crown maintains regular property visits to monitor physical condition.

Q. What about Rent Credit?
A. Occasionally, tenants negotiate hard for some of the rent to apply to their down payment. This helps them build their down payment and improves their chance of closing. The only time rent credit affects you is at closing. Like earnest money, it shows up as a credit to the tenant as previously paid money. If they fail to close they get nothing back. Only you can approve rent credit.

Q. Who is responsible for insurance?
A. 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 tenant but can not be forced.

Q. What if they are ready to close and you cannot?
A. If you have a title problem or refuse to close you have defaulted in the purchase agreement. Most tenants 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 probably succeed. Do not contract to sell to anyone if you cannot deliver good title.

Q. Is it easier to Lease Purchase than sell?
A. Yes. Offering your home for Lease Purchase exposes it to a larger segment of the buying public. You will appeal to a group of buyers you cannot reach using only the "For Sale" approach. You will solve your vacancy and cash flow problem quicker using Lease Purchase.

Q. What are the Chances of a Lease Purchase Closing?
A. Since the early 90’s Crown has had great success closing the Lease Purchases we have structured. We have gone through our learning curves and corrected the mistakes we made in the late 80’s. 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% because we can not control what people do, but we close over 75%. 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 by having a two-year tenant who takes good care of the property and leaves money behind when they move out.

Q. What are the costs?
A. The fees for a Lease Purchase are the same as a regular lease and sale. Crown gets a 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 licensed brokers we sell many homes to tenants. We get our commissions as you get your equity.

Q. What happens if the Tenant Fails to Close?
A. We find that one out of four do not close for one reason or another. We regularly contact the tenant and discuss closing options. If they need more time to close we frequently 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 per your instructions and complete a normal move-out inspection. Often, the property is returned in better condition than when the tenant moved in. Occasionally, the tenant makes improvements that stay with the property and actually increase the property's value.
You win whether they close or not! There is no downside to a Lease Purchase.

Q. Who pays Association Dues?
A. If it’s mandatory, you should pay it. Unpaid association dues can result in a lien on your property and costly legal fees. You do not want to put that responsibility in the hands of the tenant until they become the owner.

Q. Why do I need an Agent to Manage a Lease Purchase?
A. Getting contracts signed is just the beginning of the process. A Lease Purchase does not eliminate the management problems it simply puts a tenant on a path toward buying. Sometimes tenants 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 tenants because they have more money at stake 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 an ongoing process. Attentive management is needed.

Q. Can I put my property on the market for sale, lease purchase and rent, at the same time?
A. Yes. We Do it all the time.