How to do a lease purchase for fun and profit

* UPDATE * 02/25/2009: I just came from the closing of a lease purchase I put some buyers in last June.

Their house in Florida remains for sale but they got a couple of raises and were able to qualify for a new loan here. I have another scheduled to close this April; I'll follow up here with that sale too.

This is what a lease purchase is all about; putting buyers in a house now they will buy a few months or year down the road.

If you have a listing or own a house you can't sell right away, a lease purchase is another option to consider.

I personally have done several lease purchases over the past few years both with my listings and with investment properties I've owned.

I currently have two lease purchases going on; one is set to close next Wednesday, my sale and my listing; and the second is going to close this coming April.

A true, well structured lease purchase is a good deal for both buyer/lessee and owner/lessor.

First of all you need some paperwork. For a lease purchase I use and highly recommend three separate documents.

1. A sales contract spelling out exactly the terms of the purchase; this can be similar to a regular sales contract.
2. 2. A lease agreement spelling out exactly the terms of the lease while the lessee/buyers are living in the property prior to purchasing it.
3. A tenant information form with some information to allow you to positively identify your tenant/lessee, i.e. drivers license numbers, social security numbers, and a statement authorizing you to verify all the information AND obtain a consumer credit report.

If your state or local association does not provide any forms for lease purchase you need to consult with a qualified attorney to have them drafted. DO NOT write your own for a seller client; you (as a Realtor) are not permitted to practice law.

Your purchase and sales agreement for the lease purchase needs to spell out:

• This is a lease purchase
• Purchase price
• What's included
• Any closing costs to be paid by seller/lessor
• Earnest money, who holds it
• Inspections. These need to be completed and signed off on by everyone before the buyer/lessee moves in.
• I think it's a good idea to give your buyer/lessee a home warranty beginning on the date of occupancy and make them responsible for repairs, upkeep, and maintenance.

Your lease agreement needs to spell out:

• Property, what's included, i.e. blinds, fireplace logs, etc.
• Lease terms, how much a month, does any apply towards purchase price.
• Security deposits if any. I usually make this part of the non-refundable down payment.
• Repairs and maintenance. My buyer/lessee does this after they move in.
• Insurance, they need a renter's policy since they can't legally get a homeowner's policy yet.
• Number of people that live there and their identity.
  
• What constitutes default on the lease
• And any other clauses or information your attorney may advise you to include

The Tenant information form needs to include at minimum:

• Personal data, name, ss #, driver's license #, occupation(s), employer, references, and credit references.
  
• A few simple questions like have you ever filed bankruptcy, been evicted, willfully refused to pay rent, etc.
• And the following statement: "I declare the the foregoing information is truc and correct, authorize it's verification, and the obtaining of a consumer credit report. I agree that the Landlord may terminate any agreemtn entered into inreliance on any misstatements above."

A lease purchase, like a sale, does not always work out for whatever reason, but if you do some advance preparation, qualify your buyer/lessee carefully, and make sure both parties actually want it to work out your chances of success (and getting paid) go way up.

** NOTE TO TENNESSEE REALTORS ** TAR makes all the necessary forms available on the TAR website, you need forms F 57,58, & 59

Consumers can search for Knoxville, Tennessee area lease purchase opportunities at KnoxvilleHomeCenter.com