Question about Lease Option vs Rentals

[Hideaki Yen]

I recently watch a youtube video by Kris Krohn about rentals vs lease option (rent 2 own). 

Some things he mentioned where lease options are better than rentals.

- charge higher monthly rent 

- tenants tend to trash the place less since they are going to own the home 

- tenants are responsible for paying the repairs which save money 

- no property management (tenants self manage)

- no realtor fees

The only pro I can think of for a rental is that you hold the property longer so you get more cash flow over time, but I feel like the pros for the lease option outweighs the the pros of a rental, especially because you can buy more houses and do the same thing after selling it, and much faster. 

And according to my research from other sources (sorry if I'm totally wrong, just noting I'm a complete noob), what he is saying is true. 

So this makes me question why everyone does not do lease option instead of rentals. I also read somewhere that lease option has a bad rep for ripping people off. Is this the reason why it's not more widely used?

[Bruce Lynn]

@Hideaki Yen  We've basically outlawed lease options in Texas due to abuses by owners.  It seems like about 10 years ago now. Lots of people think they have a way around it...and there are ways to set it up, but all the great board certified real estate attorneys I know say don't do it.  Too hard now for the owner to get into trouble.  Almost impossible to follow the law and the damages are extreme if it ever goes that far.

You might want to check it out in your state.

The basic issue was in the old days before this law change, standard was $5000-$10,000 down for $100,000-$150,000 house.  Tenant thought they were a buyer, not a tenant.  Contract says they need to buy owner out (refinance) in 2-3 years.  Tenant decides to move or can't get refinancing in the time period, owner would evict them, keep the deposit and repeat the process.  Probably very very few tenants fixed their credit so couldn't refinance, or value of the house went down, or the contract price couldn't meet the appraised price or some other issue that prevented financing.  Now tenant decides they want their deposit back and owner says read the contract...it's non-refundable...and that made people mad.  Many tenants/buyers also had the impression the rent payments were reducing their purchase price in some way...so they've paid $5000 down, and $1000/month for 24 months so they think they now have equity of $5000+$24,000, but those were rent payments while they were leasing.  When they can't buy and realize they're not getting their $29,000 back or it is not getting applied to the purchase price, they get mad.  I guess enough people were made, or the courts got tired of dealing with it, the law changed.