Profile picture for sdmport.OR

I'm thinking of doing a lease option to buy on my house but do not know how. Can any one help?

  • June 30 2011 - Brooklyn
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

 
 

Answers (9)

Profile picture for Ron Z
A lease option is generally to be avoided from a seller's perspective.  With that said, I have assisted in several successful lease options.  Depending upon the type of market you are in, I'll usually recommend that as a condition of lease with option to buy for specified price and terms that the purchaser put up a large non refundable down payment to be applied to purchase price and or forfeited should the transaction fail to close under specified terms.  These deals can get messy in a hurry so your attorney reveiw of agreement is advised.
  • July 02 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for snoopysdad
AZRob states that I give terrible advice;
He further states that sellers have 2nd thoughts (who wouldn't have in the 'glory days of '01-'07...and I guarantee You, constructing these for either buyers, Sellers, or myself as either of the 2 as well, as a seller I had regrets often too....some properties doubled in value before closing).

He finally states that agreeing to 50%-100% of lease payment being credited to Down Payment is utterly rediculous. Maybe that's why the 200+ folks that bought or sold successfully through me, financed with me after the fact, or in my case bought or sold were so pleased that we either ACQUIRED or got RID OF something desperately seeking same.

I was addressing the original poster's request of how to SUCCESSFULLY construct a Secure Lease/Option, rather than a Lease/Purchase which is a completely different animal.

Some folks want to 'kick the tires, before lighting the fires', in the case of a Lease/Option, this works. A Significant Deposit, agreed in writing to be credited to the Purchase if that Option is exercised, along with a SIGNIFICANT Portion of the Lease Payments being credited to same, ALl in Writing, All in Advance, is how a Seller can't get hurt, unless values continue to "collapse", which by the way would prevent a single one of those "Realtors" mentioning the word "INVESTMENT", because they aren't series 7 licensed investment brokers any more than I'm an Attorney.

I Do agree with multiple posters who've recommended acquiring the services of an Attorney (if for no other reason than to REVIEW the prepared documents before execution), and the Lessee/Option exerciser needs to fully understand....they walk....they lose it all. Period.

I'm arranging ANOTHER one of these, over THIS Weekend that would make AZ Rob's skin crawl for certain....

350k property (listed price, reduced 3x so far, down about 200k from original listing price....3 YEARS Ago and 4 agents/agencies later, Seller is between Listings, selling to me/us for
CMV (via my appraisal presented), 5 years at $1500. a month Leased, With 100% of those funds being applied to Down Payment.
We're giving him a certified check (that we picked up Friday after final agreement over the phone) for $22k (10% of the Sales Price), and he's also going to be OWNER FINANCING us at
ZERO PERCENT for 10 Years, AFTER the 5 year lease with $90k down + the $20k Deposit, AMORTIZED for 15 yrs = $611. per month w/a balloon (in FIFTEEN Years) of $36.6k.

There's nothing worse than those who 'presuppose to know' telling those who've been doing this for 30+ years, that it 'can't' happen.
Like I said: "stinkin' thinkin'"

In a BUYERS Market, ANYTHING is possible, while the Realtors can't seem to grow a set and tell their customers what the subject property is REALLY Worth.

The smartest of us have been diversifying our incomes, for at least the last 10 years (in my case 20+) & smartest of us are acquiring killer RENTALS right now, because they're everywhere.

THIS Subject property just happens to be sitting on the Atlantic side of Florida, ON THE WATER and the wife just LOVES the place. Sellers are beyond desperate all over this state, many having listings that haven't been SHOWN EVEN ONCE in the last Several YEARS. They just keep lowering the price, usually about 6 months and $40k (or more) beHIND the market.

But I give bad advice...fair enough;
Seek an Attorney...the documents can be acquired at OFFICE MAX, OFFICE DEPOT, STAPLES, ONLINE, or via that Attorney if You're in a real hurry. There is no NEED for a 'realtor' in this case as a seller, aside wasting money. My apologies if feathers were ruffled, sharing knowledge and saving people money is supposed to be what these forums are purposed for....a few of us tried to do that in this thread;

An Escrow/Title Company will be less expensive (& in Florida carry a higher performance bond) than an attorney, which they all use & have on retainer (or own the firm) anyway. Original Poster, I don't know about Your state, but the point is that if You Really Need to Sell, and You're willing to work with the Right Buyer via a Lease, With Option...make them commit in a major way financially, make walking away a significant financial LOSS in their eyes and it should work out for both parties quite well.
Good Luck &
HTH
  • July 02 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

The correct term is Lease Purchase. 

A Lease Option gives the lessee the option to buy.  A Lease Purchase is an agreement to buy.

You need a lease, a sales agreement and option money put in an escrow account, as good faith that the lessee will at some point in the future buy the property, or forfeit the option money.

Have a lawyer, or an experienced Realtor, or both, help you.  It is not a complicated process, but it is very easy to make a mistake.

  • July 01 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

snoopsdad has terrible advice.

He even alludes to it further down his post where he mentions that many sellers have tried to get out of the lease sale, because the property value has increased.

The thing is, with an option sale, you still have 100% of the downside risk, with 0% of the upside gain. If the home price slides, your buyer will never buy it. They won't qualify, the home won't appraise, etc. BUT if the value goes up they certainly will. 

Further, he states "apply 50% or more up to 100% of the lease to the purchase" COMPLETELY RIDICULOUS! Even a normal loan only amortizes a small percent of the principle in the early years, so this idea would be financial lunacy for an owner. 

"stinkingthinking" is a petty small minded personal attack on the fact that these transactions generally end poorly. 
  • July 01 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

So good advice here.

It's important to know that a lease-option is the sale ofbtwo property rights, not one.  An option is something of value all on its own.  So is a lease.

Which is why I would recommend an attorney. RMLS has forms for Options, I think, and maybe even lease-options, but in having real estate agents do this work, they come uncomfortably close to practicing law, which is illegal.

Some buyers in Clackamas County retained me to help them exercise their option to purchase under a lease-option agreement they had with the owners.  We are closing today, but it was not easy. I can give you attorney referrals if you want to contact me offline.
  • July 01 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

You can always use an escrow company who specializes in lease options.   They will have all the forms you need, keep track of payments etc...   If you need some referrals for escrow companies that perform such services feel free to contact me.

Thank you,
Michael
  • June 30 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for snoopysdad

smdport,
Don't get depressed by 'stinkin' thinkin' '.

I've successfully for others and self, constructed 200+ Lease/Options that have closed over the last 30 yrs, 8 of which were my own properties. Only 9 out of that entire number didn't close and it was always related to a buyers life/financial situation changing drastically, as in divorce, death of family member, loss of job(s), etc.

Rules of the road for success are:
1-Don't be GREEDY, but DO be PICKY!

2-Lease typically is let's say $1k a mo. for Your property. That means $3k for a std. startup including 1st/last/security. YOUR Property is no longer seeking the 'typical' renter...You want a BUYER!

3-YOUR Lease becomes $1.5k per mo., $10k as a security deposit, and lock in a fair price for 2-3-5 yrs out as of TODAY's current value. Even Declining markets don't decline for 5 years.

4-100% of their deposit is applied to their down payment. 50% or MORE of their monthly lease payment is applied to their down payment (if You want to sell badly enough, You agree that 100% of their lease payment goes to down payment.
(You want to push THEIR Greed buttons, not yours')

5-You need to agree to only be responsible for hazard insurance, taxes and major systems (roof, hvac, etc) and THEY are responsible for everything else. Toilet stops up...THEY get out the plunger. They want to make improvements, let 'em. They're responsible for grass mowing etc.
They're responsble for renters insurance and yes, You Can ask for a copy of same if noted in the lease.

6-You NEED either a good rental agent or neighbor to keep an eye on things for You if You're not going to be local to the area any longer, and You NEED a Call at the FIRST Sign of trouble. IF they're messing up, they're sure to have violated the lease and all bets are off. You want to Minimize Your exposure once You have confirmation of problems (legally getting a tenant out, once the lease is violated is challenging in some states).

The Utilities need to all remain on at all times and You need a note on file with ALL utilities providers that IF the bill gets behind, or disconnect ordered, YOU need to be notified immediately.

If You follow these steps, having an attorney prepare both the lease, and the option, and are EXTREMELY Selective in who You let lease, with the ultimate intention of buying, YOUR HOME, You'll be successful too.

I've had far more SELLERS over the years (primarily between '97 and '06) trying to weasel out of the option Contracts, because in many cases the property values had DOUBLED in 2-3-5 years. Don't get greedy...when it gets to that point, they did all that they were supposed to, HONOR Your half of that contract. While we likely won't see that kind of appreciation again any time soon, it's not likely Your property will drop below the option price over either a 3 or 5 year stretch.

You'll have a steady income, spread out for years, and the 2 issues to note are that Your taxes will increase without a homestead exemption on the property, and insurance will go up based on it being a 'rental'.

Just Make Sure You've got the RIGHT FOLKS stepping up to the plate. Credit reports and their life story, while You may not want to hear it, DO give You great insight as to who You're dealing with. Be Careful, Be Honest, Be Respectful and Don't be Greedy and You will most likely be able to get Your place sold to a deserving couple or family who'll keep Your worries to the absolute minimum.
HTH

  • June 30 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

all I have to say is that in 25 years of involvement in the real estate profession, I've never had a "lease with an option to buy" actually close when it came time for the buyers to perform (I have heard of a couple).  When people take possession of the house as tenants it is a completely different experience that actually making a purchase and the home is yours!  Ownership (like the birth of a baby) makes you overlook flaws or fix them.  Tenancy makes you skeptical and critical....just saying....all the best...jj
  • June 30 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

You write an agreement with all the terms such as the monthly lease, how long it will last, how much of the leased amount will be going toward the eventual purchase price.  You might want to consult an attorney.  If you are in a declining market, your buyers will likely walk or want a price adjustment when it comes time to exercise the option to buy.....something to consider when going this route.
  • June 30 2011
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.