Lease Option

[Shirley Gregory]

Hello BP Peeps,

I am considering doing a lease option on my home in NC that I recently vacated.  I would appreciate any random advice and also some specifics such as the term limit (I think NC is 3yrs) for the option and how to assess the amount of monthly rental credit to apply to the purchase price.  Also, does this type of transaction work better in a certain price range than others?  Thanks in advance. 

[Matt Berglund]

Shirley,

This is your home - so you can surely do a lease option. Some "random" advice...

1. Price the option to purchase at market value, yet still a "good deal" for the buyer

2. LO's typically get 15-30% higher monthly rent than standard market rent rate

3. Monthly rent credit is completely up to you - HOWEVER - to be super safe, I'd stay away from it. Rather, I'd give them an "even better deal" on the sale price. If something went to litigation, you wouldn't want to give any idea whatsoever of the tenant having any type of equitable interest in the home. If you do decide to give monthly rent credit, give them a few hundred dollars/month and cap it at 1 year max... so after 1 year, they can no longer earn credit. Also, state that if they are ever late with a rent payment, they are subject to forfeiting the rent credit. And of course - make sure your contract states that this is not equity.

4. I think it works well in multiple price ranges. 

5. Ask for the "non-refundable option consideration" (the money they give you for the exclusive option to purchase) - typically 3-5% of sales price.

6. Place the option consideration money into a safe account and leave it there if you can. If the tenant/buyer walks away and does not choose to purchase, you can freshen up the house with that money.

7. Put the effort into qualifying the tenant/buyer... use a mortgage broker, assess their ability to purhcase within 1, 2, 3 years. Also, I'd recommend 1-2 year lease, with option to renew.

NC got a bit strict with terms, etc... with SB 1015, but if this is your own personal home in which you have title, just be sure to use a good contract that follows the requirements of the law.