All Forum Posts by: Marc Jolicoeur

Nick, I am intrigued by this idea of lease purchases with seller financing.

For those of us who are newbies with lease options and how they work, can you help write the pitch? Please clarify or correct this:

[i]"Mr Seller, let me lease the house from you for 2o years with the option to buy at your full asking price of $520K. To establish this contract, I will pay you $100 now for the lease option. I will pay you monthly rent of $2483 which is equivalent to a mortgage payment for the purchase price amortized over 20 years at 5%. I will also pay your property taxes, assessments, and your liability insurance. You are the bank and as long as I keep paying the rent, my equity position will grow in the amount of the principle portion of the amortization schedule. If I chose to purchase the home, I will make a balloon payment of all remaining equity. In the mean time your $520K asset is producing interest income of 5% for you which is better than you can get in bonds and other safe investments. Also, this income is offset by annual depreciation on the building, and you get to defer a big capital gain tax hit that you would get if you sold outright this year. If I exercise the option to buy in a couple of years, I pay you for all of your equity in one lump sum. If I exercise the option in 20 years, the balance will be near zero which means no capital gain tax bill for you at all; in fact, it could be a capital loss that you can use to offset other cap gains. If I never exercise the option and break the lease, you get to sell the house or lease it again, at a probably larger price. I may sub-lease the property or rent it short term to anyone and at any price as long as it does not go against our lease agreement. I may improve the property and make any renovations; and I will be responsible for 100% of any maintenance."

Please clarify if I have not gotten this idea right.