4 Factors to Evaluating a Lease Option

A lease option comes at the end of a lease contract. You may be able to extend the lease, stop the lease, or even purchase the home you are renting. You cannot decide on this important question without considering outside financial factors.

Maintenance Record

Since you have been inhabiting the property for at least a year, you are the biggest expert on how well the home has been maintained. You will be able to consider the problems you know exist in the property before extending a lease. You can ask a landlord to correct those problems before moving forward with a lease extension. If you have caused the problems through your actions, outside of normal wear and tear, you should repair the problems whether you intend on staying in the lease or exiting. Failing to repair the problems before exiting the lease means you will be assessed fees to pay for the repairs. It is typically cheaper to make those changes yourself.

Cost to Lease vs. Cost to Buy

You will need to compare the relative cost of leasing again to the relative cost of buying. This is a significant challenge, and you will not likely reach a definitive answer. Compare not only the cost of the rent versus the cost of the mortgage, but other factors such as property taxes, cost of maintenance and home insurance. You may even want to consider the expected returns you could earn by placing the down payment you would use to buy a property in the stock market instead. Of course, deciding to buy a home is not all about financial goals. You may want to own the home so you can modify the property to your specifications and enjoy living in it more than you do now.

Cost to Extend Lease vs. Cost of New Lease

With a car lease, your lease will go down at the end of a contract since the car has depreciated in value. The opposite is true of a real estate lease. The cost goes up year by year to accommodate for inflation as well as a rise in the value of real estate. It may be cheaper to find a new rental than to extend your existing lease. However, when you factor in the cost of moving, you may find more savings in staying put. It can be hard to find a definitive number, so estimating relative costs is important.

Market Considerations

The rental market in your area will not stay consistent over time. Rents will go up and down as the area experiences seasonal and yearly swings. You should look at the average cost to rent in your neighborhood when your lease expires. You may find you are overpaying, and you can ask for a reduction in rent or move. You may also find you are underpaying, in which case it is likely best to stay put and try to keep your rent low. If you would like to extend your lease, let your landlord know early so you can best avoid a potential rate increase.


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