Buying Via Lease Option

[David Kilgore]

I am currently looking at a property that I would like to acquire via lease option. My plan is to turn this into a rental for at least 5 years. I understand that the seller and I must agree upon a master-lease outlining the terms and operations of the property. There must also be a clause that will permit me to sub-lease the property. My question is who typically pays taxes and home insurance on a deal like this? I would assume that since I would be managing the property and covering repairs would it not make sense to have the seller pick up this end? Can anyone offer some insight with the formalities of these types of deals?

[Account Closed]

Originally posted by @David Kilgore:

I am currently looking at a property that I would like to acquire via lease option. My plan is to turn this into a rental for at least 5 years. I understand that the seller and I must agree upon a master-lease outlining the terms and operations of the property. There must also be a clause that will permit me to sub-lease the property. My question is who typically pays taxes and home insurance on a deal like this? I would assume that since I would be managing the property and covering repairs would it not make sense to have the seller pick up this end? Can anyone offer some insight with the formalities of these types of deals?

 You are better off buying the property "Subject To" or on a Wrap. If you must Lease Option then the seller pays all taxes and homeowner's insurance. You can't insure a home you don't own. You should Lease the property for at least a year longer than you think it will take to sell. 

For instance, I did a Lease Option (bought) a property for an Option Price of $185,000 on a three year Lease Option for $850 a month and I gave the Seller an Option Deposit of $100. I then turned around and found someone willing to do a two year Sub Lease Option (buy) for $210,000, give me $1250 a month and they gave me an Option Deposit of $10,000 to get the keys. So, I was into the property for $100 and $850 a month. I received $10,000 and $1250 a month. So, $9,900 up front and $450 a month positive cash flow plus the back end difference on the final sale closing when my buyer exercises their Option (another $15,000 to me).