Everything old is new again
Remember the lay-away plan? It was a quaint custom associated with the days before credit cards when people actually waited to purchase an item until they had the cash in hand. Typically, you would give the merchant a small down payment, and he would take the item off the shelf and lay it away or hold it for you for a specified length of time until you were able to come back with the balance and take the product home.
Sounds sort of peculiar even un-American in our purchase-with-plastic world, but believe me, the concept is coming back and not just in retail stores. A far more sophisticated and complicated version of lay away is starting to emerge in our damaged real estate market, the lease purchase or lease option.
There’s nothing new about leasing a property with an option to buy. It just hasn’t been too popular or necessary while residential properties were flying off the market at full or over asking price. But since all that has changed some sellers are looking at their empty properties and asking, “Why not?”
Essentially, leasing with an option to purchase is a contractual arrangement between the property owner and the tenant. The tenant pays rent to the owner, and in exchange, is permitted to occupy the property until the end of the contract period when the tenant has the option to purchase the property. In addition, part of the collected rent is applied toward the down payment if the purchase option is exercised. The terms need to be spelled out exactly in the contract relative to the purchase price at the end of the term, what percentage of the rent is to be applied to the purchase price and if any of the rent is refunded should the buyer not exercise his option.
For buyers, especially first time buyers, this is a great way to sort of test drive the property before purchasing, build credit and accumulate money for the down payment. In addition, the concept provides the seller with an income for hisproperty and the probability of a sale at the end of the term.
Leasing with an option to buy could be a way to get some of the excess inventory off the market as well as providing an opportunity for buyers who might not otherwise have the chance to own. Also, there are a lot of qualified buyers just sitting on the sidelines waiting for the real estate market to bottom out who would be good candidates for a lease with option arrangement.
Some of the most innovative ideas are born out of challenging circumstances. It’s time for banks, real estate professionals, sellers and buyers to start thinking creatively, and leasing with an option to buy could be one of the pieces that will fit nicely into the real estate recovery puzzle. As with any legal agreement, professional legal advice is essential. This becomes even more important when the contract involves a non-conventional real estate transaction.
So the next time you find the perfect pair of shoes to go with the perfect cocktail dress for that perfect special occasion, instead of pulling out the plastic, ask to have them put on lay away. Since everything old is new again, chances are the shop owner will understand completely.