Lease To Own

AAA

DEFINITION of 'Lease To Own'

An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time. More often than not, a portion of the total rental payment goes toward paying down the value of the item leased in the event that the renter wishes to exercise the option.

BREAKING DOWN 'Lease To Own'

For housing properties, the cost involved in lease-to-own agreements tend to be more expensive compared to standard rental agreements. In addition to paying rent, lease-to-own contract users need to pay an option fee, similar to an amount paid to buy a traditional stock option, and usually, a rent premium as well, which is not returned to the renter in the event that he or she does not exercise the option to buy the leased item.

RELATED TERMS
  1. Hire Purchase

    A method of buying goods through making installment payments ...
  2. Month-To-Month Tenancy

    A type of rental agreement. Month-to-month tenancy is based upon ...
  3. Lease

    A legal document outlining the terms under which one party agrees ...
  4. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  5. Lessee

    The person who rents land or property from a lessor. The lessee ...
  6. Lessor

    The owner of an asset that is leased under an agreement to the ...
Related Articles
  1. Personal Finance

    To Rent Or Buy? There's More To It Than Money

    Your lifestyle, level of commitment and the trade-offs need to be carefully weighed.
  2. Home & Auto

    To Rent Or Buy? The Financial Issues

    Thinking of buying a home? We look at the initial and ongoing costs, as well as the so-called benefits.
  3. Retirement

    Retirement Living: Renting Vs. Home Ownership

    Here are three simple questions you should consider when weighing this decision.
  4. Home & Auto

    4 Alternatives To A Traditional Mortgage

    If you can't qualify for or don't want a traditional mortgage, one of these options might be right for you.
  5. Home & Auto

    Rent-To-Own Real Estate Full Of Pitfalls

    Before you consider this type of arrangement, you should be aware of how it works, who benefits and the many things that can go wrong.
  6. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  7. Credit & Loans

    How Does a Lease Work?

    A lease is an agreement between two parties where the lessor owns property that it allows the lessee to use pursuant to terms of the agreement.
  8. Economics

    What is a Leasehold Improvement?

    A leasehold improvement is an alteration made to a rented space that customizes the space for the tenant.
  9. Economics

    What is Joint Tenants with Right of Survivorship?

    A type of brokerage account where a surviving member inherits the other member's share of account assets upon the death of that other member.
  10. Home & Auto

    5 Rental Red Flags

    Know what to look for before entering into a rental agreement.
RELATED FAQS
  1. What kinds of real estate transactions use triple net (NNN) leases?

    A net-net-net lease, also known as a triple net or NNN lease, is a type of real estate lease that requires the tenant to ... Read Full Answer >>
  2. What are the three "nets" of an NNN lease?

    A triple net (NNN) lease is a type of real estate lease in which the tenant is responsible for paying the building's property ... Read Full Answer >>
  3. What are the differences between single, double and triple-net leases?

    A net lease is a real estate lease in which the tenant pays, on top of his rent, one or more of the following expenses: property ... Read Full Answer >>
  4. Can you ask your landlord to remove a waiver of subrogation clause from your lease?

    You can ask your landlord to remove a waiver of subrogation clause, but you will both need to agree to its removal or the ... Read Full Answer >>
  5. Do landlords set up escrow accounts for their tenants' security deposits?

    Landlords must set up escrow accounts to hold tenants' security deposits if the accounts are required by the laws of the ... Read Full Answer >>
  6. Is a waiver of subrogation clause better for a tenant or a landlord?

    A waiver of subrogation clause is good for both a tenant and a landlord. A waiver of subrogation is a two-way agreement in ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!