What is a "lease option" in real estate?

A lease option in real estate refers to a rental agreement that provides the tenant with the option to purchase the property at a later date. This type of agreement essentially combines the elements of a lease and a purchase agreement, allowing the tenant to live in the property while also having the opportunity to buy it within a certain timeframe.

By entering into a lease option, the tenant typically pays an upfront option fee, which may be applied toward the purchase price if they decide to buy the property. Additionally, during the lease period, a portion of the rent paid may be credited toward the purchase price. This arrangement can be beneficial for both the tenant, who may need time to secure financing or make decisions about purchasing, and the landlord, who can attract tenants who intend to buy.

This understanding of lease options highlights their flexibility and appeal for tenants who might be unsure about immediate purchasing but wish to extend the possibility of ownership in the future. Other choices do not accurately represent this concept—some refer to variations of leases without the specific purchasing option feature, or are limited to a particular type of rental agreement.