Rentals and Property Management - Tacoma, Puyallup, Pierce County, Washington

HOME OWNERS - do you have a home that you want to sell on a Rent to Own basis? Click Here.

Intro:
Basically, most people would rather own a home than rent one.., but most simply cannot come up with the needed credit scores and/or down payment needed. However, there is an alternative. Lease or Rent-to-Own options. We will discuss the two most common programs that we offer, however there are a wide variation of different contracts and some people make very strange deals with other people they hardly know that can and often do cause them harm in the end. So we try to keep it as simple as possible.

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A common name you may hear these referred to is “Rent-to-Own” .

I have to recommend that you do not attempt this without the advice of an experienced attorney and/or real estate professional.

Lease option – “contract in which an owner leases their house (usually for one to five years) to a tenant for a specific monthly rent, and which gives the tenant the right to buy the house at the end of the lease period for a price established in advance”

Lease Purchase – “a Lease to Purchase contract combines a basic lease contract with an option to purchase contract, which creates a Lease to Purchase contract.” The main difference being that the lease purchase contract, the Buyer is obligated to buy; if not, the buyer would likely be in breach.

Again, both contracts can provide language where a portion or all of the rent payments can go towards the purchase of the home. Thus, allowing the buyer to accumulate down payment to more easily obtain a loan. Hire a real estate attorney or experienced real estate professionals who can prepare documents, explain and protect your interests.

Ref: http://www.wexzilla.com/lease-option-and-lease-purchase-defined/
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FACTS you need to know:
Lease option sales were popular financing instruments in the late 1970s and early 1980s. They were primarily used as a way to circumvent alienation clauses in mortgages. Proponents claimed the sale was not really a sale because it was a lease; however, courts argued otherwise.

Today, options to purchase, lease options and lease purchase agreements are three different financing documents. The variances are state specific and not all states have identical laws. Before entering into an agreement with a seller, buyers should obtain the advice of a real estate lawyer. The information below is an overview and is not meant to be construed as legal advice.

Basics of a - Lease Option

Buyer/tenant pays the seller option money for the right to later purchase the property. The lease option money may be minimal or substantial.

Buyer and seller may agree to a purchase price "Locked in" now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the lease option.

During the term of the lease option, the buyer agrees to lease the property from the seller for a predetermined rental amount.

The term of the lease option agreement is negotiable, but the common length is generally from one year to five years.

The option money may or may not apply toward the down payment. It is a fee paid to owner as consideration or for the right to control the property for a given period of time.

A portion of the monthly rental payment typically applies toward the purchase price and can be used as help with the down payment.

Option money is rarely refundable.

Nobody else can buy the property during the lease option period.

The buyer generally cannot assign the lease option without seller approval.

If the buyer does not exercise the lease option and purchase the property at the end of the lease option, the option expires.

The buyer is not obligated to buy the property in the end and Option or consideration monies paid are generally non-refundable.

Basics of a - Lease Purchase

Buyer pays the seller option money as an actual Down Payment.., to purchase the property at the end of a set period of time and generally all up front. This option money may be substantial.

Buyer and seller agree on a purchase price, often this can be at or a bit higher than market value. This requires a Purchase and Sale Agreement (P&S) with terms and conditions spelled out.

During the term of the P&S Agreement, the buyer agrees to also Lease the property from the seller for a predetermined rental amount.

A Lease attached to a P&S Agreement is negotiable, and can run from one year to five years, at which time the buyer applies for bank financing and pays the seller in full.

A portion of the monthly lease payment may apply toward the purchase price as a consideration from seller, only if property is purchased.

Option, consideration and/or down payment monies may be non-refundable depending on contract terms and State/Federal Laws.

BE AWARE: even if financing can not be obtained by buyer in the end, Option money is consideration for owner keeping property off the market on behalf of buyer/tenant.

Option money is generally non-refundable, however Down Payment monies may be refundable if Financing cannot be obtained by buyer. This is contract specific and must be handled with care as there are laws governing such transactions.

Nobody else can buy the property unless the buyer defaults.

The buyer typically cannot assign the lease purchase agreement without seller approval.

Buyers are often responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.

The buyer is obligated to buy the property.

Ref: http://homebuying.about.com/od/financingadvice/qt/091007_leaseopt.htm
Partial quote from: By Elizabeth Weintraub, About.com Guide
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Up front disclosure: BCI Properties, LLC has a fuduciary duty to represent the best interests of our clients, whether it be the home owner or the tenant. We will always be honest in all our dealings with even non-clients who we do not have an Agency relationship with. For the record, I must state that you should have all legal, lease, rental, purchase and sale agreements etc reviewed by an Attorney. We can recommend several in the area if you wish, or you may choose to call on our own Attorney Martin Burns of Tacoma, who is a partner at Attorney's Title. As a Licensed Real Estate Broker in the State of Washington, I am held to a higher level of accountability in all dealings. Owners and tenants are encouraged to obtain their own Legal Council.

A Lease or rent to own home is where a tenant by mutuall agreement with an owner will control the property by having a Lease with the option to purchase it at any time during the lease period for a fixed pre-determined price and time period. Once a Lease Option Contract is signed around and mutually agreed on, neither the owner nor their Agent can market or sell the home to anyone else, since they are bound by their agreement to give the tenant a Lease/Option right to occupy and buy. If a tenant does do not buy the home within the prescribed period set into the contracts, all bets are off and the deal is then null and void. Always make sure that the Property Manager or Seller/owner files your option to buy agreement with the county recorders office that the home is in, especially in Washington State if the Lease/Option is over 12 months it must also be Notarized by a Licensed Notary Public.

Note: The assumption is that a tenant who wishes to buy lacks the good credit or down payment needed to just purchase a home of their choice, which makes this type of option a possibly good alternative.The tenant may walk away at the end of such a Lease/Option without obligation to buy..., however tenant will lose their Option consideration and/or additional payment(s) that were made to secure the option.

A simple rental agreement with an Addendum & P&S Agreement.., allows a tenant the "option to buy" the home for a pre-set amount of time and generally for a pre-set price. Options are set for the term of the lease, which can often be 1 to 5 years. Tenants will pay normal rent and the Option fee. Option Fee can be a set amount up front or a small amount added to the rent each month. The tenant/buyer must also come up with what ever is required by their lender for a down payment, appraisal & Escrow fees and other closing costs in the end of course. Closing costs for a buyer seem to average about 3% to 5%. The Option money paid by a tenant/buyer is a payment for services to owner in "consideration" of the owner's agreement to sell and keep property off the market on behalf of tenant/buyer, which may or may not be allowed to be applied to down payment and/or closing costs, dependant on mutual agreement. For lender or Bank help, contact your choice of Lenders, they can help with the Home Loan process in terms of what to do next.

Can you afford option money? The option fee is a consideration or payment of real money paid to the owner/seller, required for a lease option contract to be valid. This upfront payment may be quite small, such as $200 a month added to the basic rent, or it may be 3-5% of the purchase price paid up front to secure the property and to lock down the purchase price. The consideration or added money will generally go toward the purchase price or down payment on the home if you decide to buy the house at the end of the lease term unless otherwise stated in writing, but unlike a security deposit, you don't get the option money back at the end of the lease if you can't purchase the house or decide not to. - The value for tenant/renter is that the owner/seller will sell to them on terms which are mutually acceptable, with value in the end for both owner and tenant if sale is consumated.

Definition: A Lease Option agreement is a contract between a seller of a property and a potential buyer of that property, where consideration or a fee is paid by the tenant/buyer to the seller, which gives the prospective buyer the right to buy the property, typically at a fixed price, within a certain preset period of time as determined by contracted mutually agreed on terms.

The owner of the property, who grants an option to a potential buyer, receives a fee in "consideration" or return for giving the right of the option to the potential buyer. The potential buyer has no obligation to the seller until they decide whether they are going to exercise their option to purchase the property or allow their option to expire. The only person who can enforce an option is the potential buyer, however the consideration or Option Fee is non-refundable..

An option is really not a sale contract, but an Addendum. At the time the option agreement is entered into between the seller and the potential buyer, the seller has not sold their property and the potential buyer has not purchased the property. There is merely an agreement that the potential buyer has the right to buy, and if the potential buyer chooses to exercise that right or not. If the Option is exercised, then the owner is obligated to sell. The tenant/buyer has the right to walk away and not purchase the property at the end of the Lease with no obligation to the seller other than the loss of the Option fee, which is non-refundable. A P&S or Purchase and Sale Agreement must be also attached in order to spell out the terms of what the purchase price, down payment, financing, inspection, disclosures etc. will be.

Three documents are needed. 1. Lease Agreement. 2. Option Addendum. 3. P&S Agreement.

BCI PROPERTIES, LLC provides these documents and full real estate services. Contact us today to learn more.

Contact:

Donald J. Leske II / Broker & Licensed Property Manager
Emily Leske / Accounting & Licensed Property Manager

BCI Properties, LLC
10909 Portland Ave., Suite L, Tacoma, WA 98445
Office: (253) 531-1010 | Don's Cell: (253) 241-6695
Fax: (253) 531.5358