(Not an option to purchase this is a sale that can be a win/win)
Before entering into a Lease – Purchase Contract Agreement the Seller should already know what the dollar amount for the monthly payment of the Lease portion needs to be to cover required costs if that is a factor. A large portion or all of the monthly payment will become part of the Buyers down payment and that portion is not rental income.
Keep in mind that during the Lease term the Seller may be able to claim a loss on their income tax return for their property expenses. Plus the amount of the initial down payment and subsequent monthly additional down payment are not taxable income when received, but are part of the sale price when the Purchase has gone to settlement and the deed transferred. (Sellers should consult with a trained income tax person)
The Contract Agreement should include a statement that no dollars paid to the Seller by the Buyer are refundable after ____ days. (Usually 30 days which allows the Buyer time to have had a Home Inspection and possibly cancel the entire Lease – Purchase according to the terms in the Contract Agreement).
To put it simply a Lease – Purchase can be done as follows:
Buyer gives Seller a large down payment (minimum $5,000 for every $150,000 property value). The down payment goes directly to the Seller and is not held in escrow.
Each month the Buyer makes a payment directly to the Seller and all or a large portion also becomes part of the down payment.
The Lease term is negotiable but normally one year and that date becomes the Closing Date on the Purchase portion of the Contract Agreement. The Contract Agreement should state and the Buyer should understand that they have to have their financing (mortgage) approved and ready to close on or before the Closing Date. If the property does not close on or before the Closing Date the Seller can cancel the purchase, keep all down payment monies, and do what they want with their property.
