What is a Lease Option?
A lease option (rent-to-own) combines a standard lease agreement with an option to purchase the property at a predetermined price within a set timeframe. The tenant pays an upfront option fee for the right to buy and receives rent credits — a percentage of each month's rent that is applied toward the purchase price. If the tenant exercises the option, they buy at the agreed price. If not, the landlord keeps the option fee and rent credits.
For Investors: The Landlord Perspective
Lease options are a win-win for landlords. You collect an upfront option fee (typically 1-5% of the property value), receive above-market monthly rent (rent credits incentivize higher payments), and get a tenant who treats the property like an owner since they intend to buy it. If the tenant doesn't exercise the option, you keep everything and can do another lease option with the next tenant.
For Buyers: The Tenant Perspective
Lease options give buyers time to improve their credit, save for a larger down payment, or test a neighborhood before committing. The purchase price is locked in at today's value, so if the property appreciates during the lease term, you benefit from built-in equity when you exercise the option. The downside is that if you don't buy, you lose the option fee and rent credits.