1. What is Lease To Purchase?

A lease to purchase agreement (also called rent-to-own) is a real estate arrangement where a tenant leases a property with the option to buy it at the end of the lease term. This calculator helps sellers determine the total cost involved in such transactions.

2. How Does the Calculator Work?

The calculator uses the lease to purchase formula:

Where:

• \( Total\ Rent \) — The sum of all rental payments made during the lease term
• \( Option \) — The option fee paid for the right to purchase the property
• \( Credit \) — Any portion of rent payments credited toward the purchase price

Explanation: The equation calculates the seller's total cost by combining all rental income with the option fee, minus any credits applied to the purchase price.

3. Importance of Cost Calculation

Details: Accurate cost calculation is crucial for sellers to evaluate the financial viability of lease-to-own agreements and compare them with traditional sales options.

4. Using the Calculator

Tips: Enter all amounts in dollars. Total rent should include all payments over the lease term. Option fee is typically 1-5% of purchase price. Credit is any portion of rent that would be applied to purchase.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between option fee and deposit?
A: The option fee is non-refundable payment for the purchase option, while a deposit is typically refundable if the purchase doesn't occur.

Q2: How is rent credit typically calculated?
A: Rent credit is often a percentage (10-25%) of each rent payment that would apply to the purchase price if exercised.

Q3: Are lease-to-own agreements legally binding?
A: Yes, when properly drafted, these agreements are legally binding contracts that outline terms for both leasing and potential purchase.

Q4: What happens if the tenant doesn't exercise the option?
A: The seller keeps the option fee and any non-credited rent payments, and the property remains available for sale.

Q5: What are tax implications of lease-to-own?
A: Option fees are typically taxable income when received, while rent credits may affect capital gains when the sale completes. Consult a tax professional.