Creative finance lease option

[Joshua Bailey]

Currently looking at a 12 acre property with 6 cabins. The owners still owes 200k and selling for 375k. Seller finance isn't an option due to his lean, although he said he would seller finance if I could pay his lein which makes me think he may be open to a lease option. How many people have created a lease option for deals like this? What is a typical down payment for and what terms do you usually see. Just want a better idea before I present another offer for lease option.

[Joe Villeneuve]

The lease option is 2 separate agreements...not connected to eachother.  There is no such thing as a down payment since you aren't buying the property...yet.  All you would have is an option to buy.  What  you are confusing for a DP is the Option Consideration, which is a fancy term for the cost of the option.

This would be a good property though for a LO.  Here's why, and how it works:

1 - Think of the Lease agreement as a contract that gives you control over the inside of the property (use of), and the Option agreement giving you control over the outside of the property.

2 - The Option agreement gives you the exclusive right to buy the property for an agreed upon price, within the term period stated within the Option agreement.  This isn't a form of buying, just control over who "can" buy it over the agreed upon term of the Option agreement.

3 - The lease gives you control over the use of the property.  Most people in this case "use" the property to live in.  In this case, and why this would work as a LO, is it can also give you the ability to sub-lease it.  This is a sandwich lease.  You would make your money on the spread between your lease payment, and the one you are receiving.

4 - The added benefit of the Option Agreement, is you can have an Option Agreement with someone else which could be the same person your are leasing the property to, but doesn't have to be. It actually works better if it isn't the same person. I prefer to lease to a tenant, and sell an option to another REI. This would give you another income "spread"...the Option Consideration

5 - Note that you can't sell the property on an option since you don't own it.  You can however, sell an option on your option.