Pros and Cons of a Lease-Purchase For Buyers
Lease-purchase agreements allow homebuyers without significant downpayments to go ahead and move into a house they would like to buy eventually. A small portion of the monthly rent payment goes toward that purchase price, which is agreed upon at signing. This is a feasible option for people who may have never pictured homeownership as an attainable goal.
As for real estate investors, many discredit the lease-purchase option, preferring instead the “subject to” agreement, where the existing home mortgage is basically taken over by the new homeowner. However, NEPA real estate investing blog goes against the flow, crediting the lease-purchase as a viable option for investors and even outlining specific scenarios when such an agreement might be appropriate. Regardless, whether for primary residence or investment purposes, there are many things a person should understand before entering into a lease-purchase.
The “pros” of lease-purchase agreements include:
Try before you buy: No surprises, no buyer’s remorse, no commitment. It’s like test-driving a car, but for a period of time lasting up to several years.
Smaller downpayment: Many times, the property owner will allow you to move in with a very small downpayment, allowing you time to save for the more significant downpayment at time of purchase.
Lock in the home price: The home’s purchase price is locked in at the time of signing. For instance, the lease-purchase agreement may be signed for a five-year period at a purchase price of $199,900, but any number of things could occur within that five year period to drive that property value up. But the originally set price of $199,900 still stands.
The “cons” of lease-purchase agreements include:
Lock in the home price: Just as this can be a benefit, one can imagine how it could be a bad thing as well. If the property value of the home or the area goes down for any reason, you’re going to overpay if you want to stay.
Risk of losing money: If you do decide to back out of the deal, you will lose your downpayment and any money you’ve paid toward the purchase of the home.
Unethical landowners: Some owners may try to yank the rug out from under you if you are late on one payment. Voila! Your downpayment, any monthly investment you’ve paid and your hopes of owning that property are down the drain. eSSORTMENT.com recommends including in the contract an allowance of three late payments before forfeiture can occur.
