Lease-to-own real estate deals can be win-win

Future-Proof: Navigate Threats, Seize Opportunities at ICNY 2018 | Jan 22-26 at the Marriott Marquis, Times Square, New York

"I am attracted by the idea of buying a house under a lease-to-own plan, but am frightened by reports of scams. Should I be?" Frightened, no; careful, yes. Any kind of financial contract can be structured in such a way that all the benefits flow to one of the parties and none to the other. Lease-to-own (LTO) plans are hardly unique in that regard. But LTO plans have a solid economic rationale, which means that they can be structured so that both parties benefit. LTO Contract Features: An LTO is a lease combined with an option to purchase the property within a specified period, usually three years or less, at an agreed-upon price. The borrower pays an option fee, 1 percent to 5 percent of the price, which is credited to the purchase price. The borrower pays rent and an additional rent premium that is also credited to the purchase price. If the purchase option is not exercised, the buyer loses both the option fee and the rent premium. An LTO deal thus has five major provisions. The ...