The lease option is a method of selling property, most commonly used in a down market. It involves leasing the property to a hopeful buyer along with an option to buy at a set date and usually at a set price.

A portion of each month’s rent is applied toward a down payment. At the termination of the lease, when, hopefully, the down payment has been reached, the buyer gets a mortgage, and the sale is completed. With a lease option you can have all the problems inherent in renting, including maintenance and the possibility of having to evict the tenant for nonpayment of rent. These risks, however, can be minimized by getting a hefty security deposit and by carefully screening the applicant, making sure that your tenant has a previously successful rental history.

The advantage is that you can get a buyer who might otherwise not be able to purchase the property to buy it from you. The causes of most problems with lease-option arrangements are that the amount of the rent that goes toward the down payment is not sufficient, or the tenant/buyer cannot qualify for a mortgage to complete the purchase when the term of the lease expires. One solution is to get the person preapproved for the eventual financing before renting out the property. In that way, you have some assurance that the eventual buyer can qualify for financing. You will also leam just how big a down payment will be needed and you can adjust the rent accordingly.

Problems with this approach are that interest rates fluctuate and people’s credit standing changes. The buyer who qualifies today may not tomorrow.

Note: Some states have restricted or even prohibited the lease option—check with a good attorney in your area.