Some people consider a lease option when they to find a place to live, a vehicle to drive or make other expensive financial commitments. A lease is a legal contract in which the lessor, or owner of the property, agrees to allow the lessee to use the property under specific terms. This type of legal agreement can benefit both parties in different ways.
Types of Leases
If you are considering entering a lease arrangement, you generally choose from two main types of agreements. An operating lease is a rental agreement that often has specific terms, including the rental price and payment schedule. These types of agreements are common for equipment and apartment rental, and they usually end with the lessee moving out of or returning the leased property. Capital leases are legal agreements that allow the lessee to purchase the property from the lessor. This type of lease usually charges interest on the loaned amount.
Advantages for Lessees
Leases can be beneficial to lessees for many reasons. Most leases do not require a down payment, or a much smaller down payment than a traditional purchasing down payment. This sometimes allows people with little money in savings or with poor credit scores to purchase a high-priced item they would otherwise not be able to afford. It also allows the lessee to “test out” the property before making an expensive, long-term commitment. Lessees get all the benefits of the property, but do not have to pay taxes on it or deal with depreciation values.
Advantages for Lessors
Lessors have many advantages to leasing their property as well. They can count on a set amount of rental income according to the terms of the lease. They can make their money over and over again by renting the property out to new lessees. Lessors own the property and can take advantage of appreciation over time either by raising the rent on it or by selling it at a profit.
Learn about all your options before entering a lease agreement from either side. Read the details of the terms agreement carefully to ensure you understand your future choices as well. Many lessees want to buy the leased property eventually, and they need to ensure their lease allows for that option. Some lessors run credit or background checks on potential lessees before handing over the property to them.
- Hemera Technologies/Photos.com/Getty Images