Mike's Blog



Awesome overview of using the Lease Option to obtain full market price for your home...


Market values continue to decline across America. Home values have decreased from 25-50% from 2005 boom. The traditional way of selling real estate is making it harder to sell residential real estate. Here in the Phoenix housing market, bank owned properties make up to 50% or more of listings in the Arizona Multiple Listing Service. Many sellers including new home builders continue to compete with low selling foreclosed homes.

Yes, mortgage rates continue to be at their lowest levels in years. However, mortgage guidelines continue to make it harder for people to obtain a traditional home mortgage based upon their credit history. One must prove their income via full documentation loans. Also, buyers must put a down payment from 3.5% up to 20% on a home purchase.

How do sellers compete in this market when selling their home? One solution is a rent to own or lease option. The typical lease option is for 24 months. The lease option puts down a small down payment from 2-5% of the sales price to the seller plus monthly payments until lease option candidate is able to be in position to exercise his/her option to purchase back the house at the agreed upon price via the purchase contract.

My name is Harry F. D'Elia III. I have been performing lease options for the last six years. I have put together over one hundred of these types of contracts between a seller and lease option candidate. I always advise that it must be a Win-Win for both sides in order to obtain success.

One reason for my high rate of success is because I aid the lease option candidate to be in position to exercise his/her option in the given time period. I work closely with Praxis Credit Consulting. This firm is able to rebuild one's credit rating through education, support and clear expectations to be performed by the lease option candidate.

Many people are forced to use this option to sell their house because they have no money to pay realtor's commission since property values declined over this past year. The lease option business will continue to grow as people have been foreclosed on plus many people have lost their jobs. It is a perfect storm for investors at this time.


There are risks on both sides of the coin. The lease option candidate with bad credit and no money for a 20% down payment, a lease option is a great solution. Making their monthly payments on time plus clearing up one's credit will aid in rebuilding one's credit rating. However, it does come with risks. Will the home appraise for the agreed upon purchase price set by buyer and seller? If it does not appraise, then buyer and seller will need to negotiate. There are no guarantees that buyer can obtain a loan program that fits their current profile needs.

There are many pluses for the sellers. First, the seller is able to obtain above asking rental price along with a nonrefundable down payment. Also, seller is able to take the tax deductions on the property. Plus, seller can avoid realtor's commission if lease option candidate exercises his/her option. If the tenant does not exercise the option, the seller still wins because the property has appreciated and person in the house has paid down the seller's mortgage each month. The downside to the seller is when the house does not appraise for agreed upon price. I have experienced when the seller will not sell the house because house did not appraise. The tenant created a lot of damage to the property. Plus, the seller will have to start the eviction process.

Everything is negotiable in real estate. Having a solid lease option contract that spells out every detail for both the seller and buyer is the key to a successful lease option. Real Estate and Beyond Network has developed a solid lease option contract that ties both the rental contract and purchase contract together to have a legal binding contract with seller and lease option contract. My lease option contract is solid in the court of law and it has been challenged many times.

Setting up Win-Win Scenario

I always advise my investors to treat people the way they want people to treat them. Respect and honor goes a long way with people. What if the seller would send the lease option candidate a $100 gift certificate from Wal-Mart in a thank you note? I believe this act of kindness will go a long way. I have developed checklists for both sides of the transaction to be successful.

Seller Beware Checklist

  • Seller will need to conduct full background check on potential lease option candidate including employment check and three reference checks with name and number
  • Insist on using your contract with detailed real estate language
  • Set the price where lease option candidate will be able to purchase the house in 24-36 months. It must be a Win-Win for both seller and lease option candidate
  • Treat lease option candidate as a homeowner. For example-his monthly payment will be referred as a mortgage payment to have home ownership in his/her mind.
  • Seller still responsible for his/her mortgage payment, taxes and insurance along with HOA CC&Rs
  • Set up quarterly inspections by third party person to inspect interior and exterior along with changing AC filter and other minor maintenance upkeeps to avoid any major damages to the house
  • Lease option candidate is responsible for all repairs of the house
  • Purchase home warranty on the property for extra protection. Lease option candidate will be responsible for copay-around $45-55 per visit
  • Ensure you use both a residential lease and purchase contract along with a document bringing all documents together for extra protection
  • Retain the services of a real estate lawyer or property management company in case one needs to evict a tenant
  • Require the lease option candidate to participate in a credit consulting program like the one we offer at Praxis Credit Consulting here in Phoenix, AZ
  • Record all documents at title
  • Be prepared to modify the terms of the contract if market conditions change in the near future
  • Give up to 25% of the monthly payment towards the purchase of the house for incentive to make payments on time

Make the Call, Set the Plan, Do the Deal$!

Feel free to listen to my Radio Show to learn more about the phoenix real estate market, new trends, and the latest opportunities.  The Real Estate and Beyond Radio Show Airs every Saturday from Noon-2:00pm on Conservative Newstalk KKNT 960am in Phoenix, Arizona.  You can listent to past shows, or stream on-line.

news talk radio

Phoenix Real Estate Resource Center


Follow Me On:  facebook profile  twitter profile   linked in profile  rss fee for blog                                      search for phoenix real estate

Mike Hogan

Associate Broker

RE/MAX Commonwealth





Comment balloon 2 commentsMike Hogan • January 17 2010 02:10PM



I agree that Lease Option is an excellent way for many sellers to get someone into a home.

It really works well for less than qualified buyers and sellers with investment properties sitting vacant.

Best regards,

Posted by Judi Boad (SOLUTIONS REAL ESTATE) almost 9 years ago

Judi- as an investor I've used LO's for years...but as a Realtor I've only lately started encouraging disheartened homeowners to do so. I sold one today for a family using a lease option...in some cases it's really the best option.

Posted by Mike Hogan, MBA (The Hogan Group at Keller Williams Realty) almost 9 years ago