What is a lease option?

A lease option is a specific type of agreement that grants the tenant the right to purchase the property that they are leasing at a predetermined price during the duration of the lease term. This arrangement provides the tenant with the opportunity to live in the property while having the option to buy it later, which can be particularly advantageous for those who may not currently qualify for a mortgage or who want to secure the property without making an immediate purchase.

This mechanism is beneficial for both landlords and tenants; landlords can attract potential buyers and generate rental income, while tenants have a pathway toward homeownership without needing to commit upfront to a purchase. The lease option typically includes certain conditions, such as the length of the option period and any financial considerations, such as option fees or how lease payments contribute toward the purchase price.

Understanding this concept is vital for real estate professionals as it impacts investments, negotiations, and the structuring of rental agreements.