Lease to buy

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The remainder of the lease portion should contain all of the items normally covered in a standard rental agreement. You'll want to include, for example, a description of the property and the addresses of the parties involved . . . an explanation of how the maintenance, utility, and insurance costs will be paid . . . an outline of the procedure to be used to return — or not return — the security deposit . . . and remedies should either party default on his or her end of the bargain .

. . . AND THE OPTION

Because a legally binding contract will go into effect when you exercise an option to buy, you'll generally want to include all the essential components of a formal sale contract in the original option agreement: As an alternative, a preliminary agreement to lease with the option to purchase can be used, containing the written understanding that more complete final documents will be drawn up prior to the date of lessee possession, and that the offer to buy is contingent upon approval-by both parties-of those documents. But even such a shortened contract should include [1] the purchase price and the terms of sale, [2] any conditions of and limitations to the title, [3] the contingencies of the sale, and [4] the apportionment of the closing costs. (Don't let the formal jargon put you off. As I'll explain below, each of those items is simply a commonsense rule designed to help safeguard your investment.)

The purchase price and terms of sale detail how much the property will cost when you exercise the option to buy and where that money will come from. You'll want to include the amount of the down payment, the percentage of rent (try for at least 25%) that'll be applied toward that cost, and an explanation of how you intend to foot the bill for the balance. Obviously, as the buyer, you're going to want the lowest possible price and the easiest terms. You might be able to convince the seller to finance the transaction so that you'll be able to swing the deal without having to go through the hassle of providing a credit history. However you do finance the sale, though, be sure to stipulate the type of loan, the amount, the payment plan, and the interest.

Clearing the title gives you assurance that the parcel is free of any outstanding debts (taxes, insurance premiums, mortgages, and such) . . . and that any limitations to the title (such as land-use restrictions) are clearly listed. Otherwise, you might well find yourself saddled with an unpaid bill after you've settled in. (Be sure, too, that the title is insured for its claims.)

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