There are several situations in which a straight-forward real estate purchase and sale transaction is not necessarily a seller’s best solution.
1. They may be responsible for managing and disposing of a property for an elderly relative who has moved into an extended care facility.
With a lease option agreement in place, they can receive rental income for the term of the agreement, and sell the property to the tenant-buyer at the end of the agreement. The rental income can help pay for the extended care, with a lump sum at the end to use in the best interests of their loved one.
2. They may need to move to another locality, and find another home, quickly – so quickly that covering the costs of the property they already have while they are trying to sell it will be financially disastrous for them.
With a lease option agreement in place, they can receive rental income to cover their existing mortgage, insurance and taxes during the term or the agreement. At the end, they will be able to sell the existing property at current market value.
3. They have become widowed, or they’ve had a relationship break-down, so that they are suddenly responsible for carrying the costs of their existing home by themselves.
With a lease option agreement in place, they can down-size to a living situation they can afford on their own. Meanwhile, the monthly rental income will cover their costs, and they will be assured of a sale at the end of the agreement.
4. It’s a buyers’ market, and their house is not generating a lot of interest. They’re thinking seriously of taking it off the market, even though they really need to move on.
There is a market for houses like theirs, even in a buyers’ market, of people who don’t yet qualify for a traditional mortgage. With a lease option in place, they can move on and collect rent while the tenant-buyer lives in their home, repairs their credit and/or saves for their down-payment. By the end of the lease option agreement, the tenant-buyer qualifies for a mortgage and a normal closing takes place. Then, the sellers get their equity out.