What is a lease option in real estate?

A lease option in real estate is indeed a contract that allows a tenant to purchase the property at a predetermined price. This type of agreement works by giving the tenant the right, but not the obligation, to buy the property within a certain period, usually at a set price agreed upon at the time of signing the lease. This can be particularly beneficial for tenants who may not currently have the financial capacity to buy but are interested in ownership in the future.

Typically, in such arrangements, a portion of the rent may be credited towards the purchase price, which can make the property more affordable when the tenant decides to exercise the option to buy. This method provides tenants an opportunity to "test drive" the property before committing to a purchase, allowing them to assess the neighborhood, the condition of the home, and other important factors.

This option contrasts sharply with a simple rental agreement where no purchase option exists, as well as other arrangements where the landlord maintains complete control without providing any buying opportunity to the tenant. In essence, a lease option combines the benefits of rental and ownership, making it an appealing choice for many tenants and investors alike.