Property Futures

Real Estate News, Reviews and Investment

Creative Finance: Lease to Own

Article: typical terms of a lease-to-own agreement.

A lease-to-own agreement allows the renter to purchase the asset leased at the end of the agreement period. Typically, part of the fee is used to offset the cost of the asset.

Lease to own

Creative financing

Lease-to-own agreements are common where governments are trying to encourage home ownership, and are also common among businesses offering company cars.

An example would be a business that offers an employee a company car provided they contribute towards the cost. At the end of a set period, the employee has the opportunity to purchase the car at a discounted rate, having already made payments against it through the lease fees. However, if the employee leaves the company before the purchase point, they will not be able to buy the car at that price.

Premium costs and option to buy

Lease-to-own agreements are typically more expensive than standard rental agreements, even where subsidized by local governments. They grant the renter the option to buy the item at a fixed price at the end of the agreement period.

  • In addition to market rent, a premium will be charged that will count against the value of the asset should it be purchased at the end of the agreement.
  • However, if the asset is not purchased the premium will not be returned. It’s like a non-refundable deposit.

When are lease to own agreements offered?

Some governments and financial institutions offer lease-to-own agreements  as a way of encouraging people with low incomes and poor credit ratings who are unable to get a loan from mainstream financial institutions to become property owners.

  • They are also often offered to allow people to buy more expensive consumer goods such as cars and furniture over a period of time and may also be offered as an employee benefit, where the employee can pay the lease cost out of pre-tax salary, and thus get more for their money.
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