Lease-to-Own Contracts

Lease to own contracts are not frequently used, but they still hold a special place within the world of real estate buying and selling. They are especially attractive and functional for those who own property as landlords, but may want to sell it eventually. And they work well for their tenants, who may be saving up to buy the home they are renting.

A lease to own contract is normally not exactly a contract to purchase, but is more accurately defined as an option. The contract gives the future buyer the option to buy the house, usually for a prearranged price, and lets monthly payments of rent made before the purchase accumulate as the down payment. If you lease a home and are thinking of buying it, but don't have an option contract, your landlord might sell the house out from under you. With the contract, however, you have the right to buy the house before the landlord puts it on the market, giving you "first dibs on it". Plus, the payments you have already made are normally retroactively subtracted from the sales price. This works well for buyers who don't have enough money for a down payment, because the monthly lease payments accumulate into a retroactive down payment.

For landlords, the contract can act as an incentive to get good tenants to eventually buy the property they are living in. It is the real estate equivalent of a layaway plan, in some respects. If a landlord gets a tenant to sign a lease to own contract, it helps to inspire the tenant to take care of the property and later buy it, which is a desirable outcome for a landlord.

Real Estate Investing