Question on Deal Structure for Lease Option Rehab
I have a multi-unit property that needs a complete rehab and I have a buyer who would like to buy it using a lease option. I suggested this because they can't get financing until they complete the rehab. After the rehab, it will be a great cashflowing property worth significantly more than the lease option price so they should be able to easily obtain a loan.
They have agreed to put down a non-refundable option fee that I will credit at time of purchase. They have also agreed to pay a monthly rental amount while they are doing the rehab.
I have at attorney who does not appear to have any experience with this so I have several questions on the forms to complete. I guess the first question is if this even makes sense, but assuming it does, here are the additional questions:
1) Do I need just one agreement that includes non-refundable option fee, monthly amount of rent until they close, and the option to purchase agreement at a certain price within a certain time period?
2) What happens if they do the rehab and then can't get financing within the option period? I think I would own the rehabbed building, but I don't want to put them in a bad position so how can I make sure they are protected in this deal?
3) Do I need to get a different insurance policy for the rehab since I still own the building while they are doing the rehab or is that something they would get?
4) What clauses should I include in the lease option to cover myself in the event they stop paying rent?
5) Any other pitfalls or items I need to address?
Thanks so much for any advice.