Questions about Lease Options

[Hugo Garcia]

Hi BiggerPockets family,

I have a couple of questions regarding Lease Options:

1.  What are rent credits? And what are they used for and considered for?

2.  How to determine how many years to do a Lease Option for? What is the criteria and what is the most common used time frame?

3.  Option Deposit Flat Fee vs 3% of the house price. What is the difference, and is there a problem legally if I simply choose to do a flat fee?

Thank you.

[Todd Primmer]

I am by no means an expert, but here is my 2 cents.

1) Rent credit will do nothing but make it harder to remove someone from the property if things go bad. It's my understanding that the tenant buyer can so equity/interest in the property and that is never a good thing. Do not offer rent credit. You offer the them the chance to add to the non-refundable option deposit if they wish.

2) Option can be any length, mostly 2 years or less. Lease is one year at a time with renewals. Never mention the Lease in the option agreement or the option agreement in the lease.

3) Get as much money as possible for the option fee. Don't mention it as a down payment, but do offer to credit at close if they exercise the option within the agreed upon timeframe outlined in the option agreement. Do not give them a copy of the option agreement, do not file it at the courthouse.

Again the above is my 2 cents from lessons learned the hard way. There are others on BP that know way, way more than I.