Seller financing vs. lease option - what’s the difference?

[Brian Ellis]

What would be the pros and cons of each option? I’ve run into a scenario where a seller wasn’t willing to seller finance, but came back asking if I would consider a lease option instead. 

@Steve Vaughan would you be willing to chime in? I know you have extensive experience with seller financing.

any help is appreciated, thanks everyone !

[Steve Vaughan]

@Brian Ellis    Thanks for the mention. Nice to be called back every now and then.

In a nutshell seller financing is selling now while a lease option is a lease that also has a separate option to buy later. Separation is key.  The tenant has a standard lease in one hand and an exclusive right to buy at a certain price for a certain amount of time in the other.  They pay for this right in the form of option consideration.  The words 'down payment' do not exist in the option world. 

For instance I just did one last year and the tenant buyer exercised her option and purchased this March.  She paid $9000 for the exclusive right or option to buy for $325000 within 12 months.  I also offered an extension of an additional 6 months for a fee of $5000 but she didn't need it. 

Consideration is like earnest money and goes towards the future purchase. I generally charge about 3%.   A fee is just for more time.  Both are forfeited if the option is not exercised within the term of the option given.

So yes, you collect rent.  It is a standard lease.  The option is separate.  I allow mine to be assignable.  I love these for my nicer houses  I don't plan on holding forever or houses that need work I don't want to do.  No commissions and no vacancy while you wait for your buyer to get a loan.