Lease To Purchase Real Estate Calculator

Lease Purchase Equations:

\[ Dep = (CC - RV) / T \] \[ Fin = (CC + RV) \times MF \] \[ MP = Dep + Fin \]

Capitalized Cost (CC):

Residual Value (RV):

Term (T):

months

Money Factor (MF):

decimal

Depreciation (Dep):

Finance Fee (Fin):

Monthly Payment (MP):

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1. What is Lease To Purchase Real Estate?

A lease to purchase (or lease-option) agreement in real estate allows a tenant to lease a property with the option to buy it at the end of the lease term. This calculator helps determine the monthly payments for such arrangements.

2. How Does the Calculator Work?

The calculator uses these equations:

\[ Dep = (CC - RV) / T \] \[ Fin = (CC + RV) \times MF \] \[ MP = Dep + Fin \]

Where:

$ Dep $ — Depreciation ($/month)
$ Fin $ — Finance fee ($/month)
$ MP $ — Monthly payment ($)
$ CC $ — Capitalized cost ($)
$ RV $ — Residual value ($)
$ T $ — Term (months)
$ MF $ — Money factor (decimal)

Explanation: The calculation separates the monthly payment into depreciation (amortization of value) and finance charges.

3. Importance of Lease Purchase Calculation

Details: Understanding these calculations helps both buyers and sellers evaluate the financial terms of lease-option agreements and compare them to traditional financing options.

4. Using the Calculator

Tips: Enter all values in dollars except term (months) and money factor (decimal). Money factor can be converted from APR by dividing by 2400.

5. Frequently Asked Questions (FAQ)

Q1: What is capitalized cost in real estate leasing?
A: This is the negotiated price of the property that the lease payments are based on, similar to a vehicle's agreed-upon price in auto leasing.

Q2: How is residual value determined?
A: The residual is the projected value of the property at lease end, often based on expected appreciation/depreciation and negotiated between parties.

Q3: What's a typical money factor?
A: Money factors typically range from 0.001 to 0.004, equivalent to 2.4% to 9.6% APR. Lower factors mean less financing cost.

Q4: Are there additional costs in lease-purchase agreements?
A: Yes, often including option fees, maintenance responsibilities, and property taxes that may not be included in this basic calculation.

Q5: How does this compare to traditional mortgage payments?
A: Lease-purchase payments are often higher than equivalent mortgage payments but require less upfront capital and provide flexibility.