Why Not To Do a Lease Purchase

Everybody's Got One

This is just my opinion, but I wanted to comment on the number of calls I get every week about lease purchases.  I think they are probably overrated.  From personal experience, sellers enter into them reluctantly because they couldn't outright sell their house.  Some investors like to offer lease purchases to be able to charge inflated rents, large, non-refundable deposits and a higher sales price.  Buyers tend to think that since their credit isn't quite where it needs to be, the act of doing the lease purchase will help their credit score along, allow them to save some money and so on.  In reality, fast forward 12 months & what I tend to see is that the buyer either no longer wants to buy the house if they do qualify but more often than not they just still don't qualify for a loan - the problems that prevented them from buying in the first place are still present. 

---

Oh, The Bitter Disappointment...

So, in the end the buyers waste thousands on deposits, inflated rent, etc. while the seller is either disappointed they still have to try to get the house sold.  Or the seller in the investor scenario is grinning because they knew it wouldn't work out - if it did, the contract price was top of the market anyway so they'd be glad to sell at the terms they set out.

My Advice?

I advise people constantly to think about continuing to rent until your finances are in order instead of getting into a lease purchase.  Then, when you are armed with a pre-approval letter the world is your oyster.  You have way, way more homes to shop from, you have more negotiating power so you'll get a better price & term on the home, and you haven't wasted thousands.  Not to mention all the disappointment on both sides.  If you are a seller, I would tell you not to enter into a lease purchase unless you are fully ready to expect the worse and end up being a landlord for a year or more, cleaning carpet, painting & ultimately putting the home back on the market.