Do you do lease/options? Thoughts on those?

Question

How many of you have offered your properties on lease w/option to buy? What were the terms of that? Meaning did you charge X amount down up front and a lease term of X amount of time? After which point their down would apply and they would need to finance the rest after the lease period?

Also how many of you have done them where the potential buyers decided NOT to buy the home? Do you retain the down payment in those cases?

I'm trying to get a better understanding on lease/options and if they are a good way to go. Do you find you get better tenants w/a lease option? Or are they actually harder to find? Is there a adverage percentage you'd charge for the down payment or is that pretty flexible?

Adrian G. · Answer

Long story short, I highly suggest you read Wendy Pattons lease option book and after I read it 2 times. I was able to structure 3 of my own properties on them which all lead to purchase of the properties so I was very happy. Learn as much as you can about it and DO it.

Michael Rossi · Answer

And then you're giving back the money you made while waiting for the lease-option buyer to appear (while losing rent).

I'm not saying that lease-options are bad.  I've bought and "sold" with lease options,  I'm just trying to point out that lease-options aren't anything like the guru hype.  In my opinion, they're really not much different, from a monetary standpoint, than straight rentals.

Mike

Scott M. · Answer

Well they can argue for equitable interest all they want but they don't' have it.  They didn't buy "equity" they bought an option that may or may not turn into equity when they buy it but not before.

Your contract would spell that out.

I haven't had the same experience as Mike has had with lease options - the homes are generally better treated in my case but he is right on that you wait longer for someone to show up with the cash to afford it - so you have to run the numbers - no matter if it is a dishwasher :) or holding costs - you have to run the number to see when it stops making sense.

I will say I generally make more money on the lease option cuz they do take care of it better (in my experience) and you get the extra cash.

When it becomes clear they are not going to be able to buy it if your keep communications up like a good landlord - then you can offer then a portion of their $$ back in trade for good upkeep of the home.

You have to ask yourself what is more important - keeping the $$ or giving some back in trade for a well kept home....

Scott M. · Answer

Wendy Patton books do have sample ones but the one I use came from my attorney.

You can also google "lease option contracts" and you can find a bunch that way - some free some for pay.

Kel S · Answer

That was going to be my next question too...if anyone knows where to get a good lease-option contract. Or is this something an attorney should draw up?

Mark Forest · Answer

Mike OH makes some good points about loosing money while you wait for a prospective qualified lessee.  In my most recent experience with my single family home rental I did have several people expressly ask for lease options.  This may be because the home is a nice two story colonial in a good neighborhood.  I have no idea if they were qualified or not, but I would like to be ready for my next project.

Where can I get a good lease option contract?

Michael Rossi · Answer

You need the option to terminate if the lease is terminated for any reason or if the tenant vacates the premises.

Mike

Scott M. · Answer

A seond endorsment for Wendy Patton's book - all of her books for that matter.

Jon Klaus · Answer

"The lease and the option are separate agreements. I would not recommend referring to one in the other."

If they break the lease I assume the option is no longer valid?  But don't you have to refer to the lease in the option in order for the default to apply to the option as well?

Tony Severino · Answer

Kel

We use L.O's almost exclusively, in three states,  Illinois Indiana, and Mich. We average about 1 per week. Last year we did 83, but this year I am toning ot down a bit. I am looking for higher equity properties. Buying less, but buying better

Lease Options are a great way that we generate a nice amount of cash upfront. It is common for us to receive 3-5% as the option deposit.

This is not "equitable interest" as someone suggested, because this is not a Purchase deposit, it is applied to the Option. Look at it this way, I can put an Option to buy a stock of Google. If I choose to exercise my option, my deposit is applied. If I pass on my option, I loose the deposit.  The same with L.O. on houses.

The tenant buyers, also take much better care of the property. Inour Lease Option, the tenant takes care of 100% of the repairs. We guarantee the property for 30 days, to give them a level of comfort that they are moving into a quality property and not some piece of crap.

I have both given them rent credit, and also have not. If they ask for it, we give it. If they don't I am not offering it. If you offer it without them asking, you maybe just giving them money right out of your pocket.

Now, what I offer them if they ask, it to amortize the payments, just like they would get if they got a traditional loan. Another sense of ownership. I know other people give them 100 bucks or whatever makes sense for the deal. Do what you feel comfortable with.

Also, try to remember this. Most of your tenant buyers will not cash out. Last year, I evicted 11, and 6 walked away at the end of their lease.

My terms are always 1 year long. You are "married" to the tenant buyer during your lease term, once that ink hits the paper, your committed. If the Tenant buyer does what they agree to, pay on time etc, then I will quickly continue the lease for another year. If though we have to pull teeth every month, I will hesitate to renew the lease. If you give them a three year term, and they are always late, you have a three year marriage. The divorce is always the worst part.

The lease and the option are separate agreements. I would not recommend referring to one in the other.

If eviction time comes and it will, you evict on the lease, not the option. Been there, several time.... Your lease is the reason for the eviction, and the option has no bearing on the eviction.

Hope that helps!

Tony

Do you do lease/options? Thoughts on those?

Most Popular Reply