Real Estate Investing Basics

The 10 Documents You Must Use When Doing a Lease Option

193 Articles Written

I’m still training for my marathon and I still want to shoot myself as I jog through the summer heat in my Bill Clinton shorts (maybe I’d be having more fun if I had an intern?). Anyway, I’m in this marathon mess because of a promise I made to a friend. So, I was thinking, what if this friend had an “unfortunate” accident and couldn’t run. Well, then I guess I wouldn’t have to continue running either. If anyone out there wants to pull a Tanya Harding on my friend just let me know. Applicants must have a strong swing and no ice skating experience is required.

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Okay, so last week I said I would go over the beginning of lease options. First, you have to find the deal. Here are the top three ways to find lease option deals (all targeting tired landlords).

  1. Direct mail – Buy a mailing list from or another company and send out at least 1,000 letters a month to absentee owners.
  2. Drive for dollars – Drive the zip codes that you invest in and call every “for rent” sign that you see. Also, write down the addresses of all vacant houses.
  3. – Go to the “for rent” section on craigslist. Scan the listings to find ones that meet your buying criteria. Once you find a property, send the landlord a very detailed email about how you want to guarantee his rent and maintenance and all you ask is that you can purchase the property down the line. Every single day you should get on craigslist and email at least 10 landlords. Doing this every day should get you at least one deal a month.

    Alright, so let’s pretend you are one of the 5% of people who are going to actually listen to me. You have done your marketing and found a lease option deal. Here is the important and detailed paperwork you will need to get signed by the seller:

    1. Residential lease with option to purchase – This is a combo lease and option agreement, that states the monthly rent you will pay the seller, the length of the lease and the purchase price of the property.
    2. Authorization to release – This form allows you to check the mortgage balance and monthly payments on the loan (if the sellers say they own $200,000 on the property, you need to make sure they are telling the truth).
    3. Due on sale disclosure – You need to let the sellers know that if they give you a five year lease with option to buy, that it can trigger the clause (before you freak out, this never happens…but you always give people 100% full disclosure).
    4. Lead based paint disclosure – If the house was built before 1978, go to to get the form.
    5. Notice of option agreement – This is a very important form that needs to be recorded at your local courthouse. This clouds the title and lets the world know that you have the option to buy the house.
    6. Lease option consultation agreement – Another important form. This is one of my many agreements that cost me more than $1,200 for my lawyer to create. This makes sure that the seller can’t squeeze you out as the middle man and that you get the difference between your purchase price with the seller and sales price to the tenant/buyer. This will be notarized.
    7. Power of attorney – Needed so you can take care of the loan, make the payments…basically do anything you need to the account (since you are the one paying the mortgage. Always pay the mortgage directly to the company with a lease option. Never let the seller do it).
    8. Lender notification – Notifies the lender to send all coupons and loan information to your mailing address.
    9. Affidavit of liens – Must be notarized and the seller states that there are no liens against the property, such as mechanics liens.
    10. Property disclosure/disclaimer – All states have different disclosures that need to be filled out. You can get a copy from a local investor or Realtor (yes, there are a few things Realtors are good for).

    I tell you, I hope folks learn this method. I get properties all of the time with no money down (my only expense is marketing) and of course never use any credit. Also, the tenants are great and never cause problems. Last Friday, I had a tenant call me because they had problems with the HVAC. I kindly reminded them that they are responsible for the first $300 in repairs and that they needed to call the home warranty company (always make your lease option tenants get a home warranty).

    Next week, I am going to go over the detailed checklist of what needs to be done after the paperwork is signed (such as the ohhh so important task of recording the option at the courthouse). So happy trails folks, I’m on a semi-vacation this week because life is good when you’re a real estate investor…because you control your own destiny and you control your time (unless you’re married, then I guess the misses does that).

    Liza Ray
    Replied over 11 years ago
    I must admit, you have done a lot of research, your article is of great help for many.
    Replied over 11 years ago
    This information became of big help to me! Things there I had no idea about. I wonder though, can you visit several Cities through craigslist? Or, do they only allow you to respond to one area? Hope that makes sense. Still great info there!
    Cedar City real estate
    Replied over 11 years ago
    I like reading your post because you are funny and smart. Good information is always abundant every time I read this blog.
    Chris Lengquist
    Replied over 11 years ago
    Very good post. The Due on Sale Clauses haven’t been called in the past. I agree. But what are your thoughts on the future? If interest rates go to 7.5%, or 8.0% (or worse) it might be worth the banks time to activate the clause. It at least has to be a possibility.
    Texas home loans
    Replied over 11 years ago
    What an informative post! I goes without saying thatyour research work is truly amazing! very very useful information for many! Reply Report comment
    Texas home loans
    Replied over 11 years ago
    What an informative post! I goes without saying thatyour research work is truly amazing! very very useful information for many!
    florida property
    Replied over 11 years ago
    Great info, Jason. I’m looking at lease-optioning one of our properties so your post was very timely. I look forward to part 2!
    Replied over 11 years ago
    If you ask me all realtors are liars and lazy workers. They don’t want to show a home unless they see the green. Let’s face it; the market is no longer HOT for sellers. Of course you realtors have to lie and say it’s getting better because you guys are in sales right! It’s your lively hood. Sure when the market was hot you realtors did not have to work very hard. Just list the home and watch it fly off the shelf so to speak. But now things are different. The market is flooded with homes not moving. I have never seen so many foreclosures, pre-foreclosures, and Bank Sales, Auctions, and sheriff sales not to mention SHORT SALES. Too many people purchased homes when the market was high and now they can not dump. And it’s getting worse. Every day homes are lowering their prices and they are still not selling. Forget about flipping, no one in their right mind can flip a home right now. Builders and Banks are hurting as well. It’s about time you realtors face realty and tell all home owners their homes are really not worth as much as they think it is. If you guys want to continue making money, start working harder. Or go get a real job. Oh and by the way the market will not go up again until 2015. Stop thinking about yourself and your gain and start truly working for buyers. If you want to make a deal, tell buyers to bid really low, even if it’s unrealistic. Give them an incentive to look and want to buy. Do not think you are offending the seller at all. Who wants a home to just sit around on the market for over a year? Times are hard and not getting any better. Also how greedy can people be? I’d rather have ten low contracts filled out on my desk at once than none. Think about it! I was appalled by a friend of mine (lets call her Mary) who is a real estate agent. She works for Weichert Realtors. This past year I gave her my home to list. We listed my home in December at $300,000 with room for negotiating (as it is no longer a sellers market). After five months a buyer finally came forward and gave a low offer of $215,000. I was not offended all. What we did was negotiate to a closing price of $235,000. At first I was pleased. But…..when it was time to look and purchase, I could not believe the way I was treated by Mary. We looked at about six homes. One of the homes was a definite fixer upper which I felt was totally not worth the asking price of $250,000 and it had been sitting on the Market since April. So I told Mary I would like to put a low cash offer in of $180,000 (with room for negotiating, or so you would think). She told me the offer was too low and the buyer would not accept it. She did not even call the listing agent, nor did she complete a contract. Some friend let alone some agent she turned out to be. I am still looking at the market and have noticed that the home is still active and has not yet sold. So now I am on a different level of looking and dealing with realtors. As far as I am concerned, I work with all realtors and who ever truly works the best and cares the best will make the most money. I have some friends that have also been treated poorly by Realtors. Starting September 1st we have decided to bid any kind of offer we feel is necessary. Any Agent that does not submit the offer will be reported to (NAR) National Association of Realtors and NJ Real Estate Commission. Some Realtors truly do not deserve to have a License.
    Replied over 11 years ago
    Skeeter… I feel your pain, but NOT ALL Realtors are lazy liars.(close…but not quite all) I’m a Real Estate Investor and have my RE license in South Carolina. It does amaze me how many licensed agents are unprofessional & do not follow the code of ethics laid down by the National Association of Realtors. At least twice a week, I come across agents who don’t disclose that the property is listed by a brokerage in their advertising = BIG NO-NO. I’ve emailed agents inquiring to whether their clients would like to sell via a lease option and we get no response. After talking with them by phone…I’ve even had Realtors say that they’ll check with their clients and never hear from them again. And yet another Realtor who I was hoping to help sell her listing, told me “You snooze, you lose…” after the property went pending with someone else! You can’t totally blame Realtors for not thinking outside the traditional…get a listing/put it on the MLS/wait for a buyer scenerio because that’s all they’ve ever been taught. A good Real Estate Agent will educate themselves so that they can work in the best interest of their client – not what seems to work for their own agenda & bottom line. I’ve personally spend quite a bit of $$$ learning innovative/creative techniques for buying and selling(like Lease Options and other strategies)so that as an Investor, we can fill a need in the market or as a Realtor, I can TRULY give my clients ethical/professional/educated service. Viva La Lease Options!!!
    Shirley Farrington
    Replied about 7 years ago
    I agree with you and I like the way you explain yourself. I would like to add on thing as an agent myself. We can sense when buyers think we have no value! Experienced agents can read people pretty well. When the agents feel you are being treating them like “Dog Spot”…well how would you feel in your line of work if the people that you deal with in your business don’t value you and expect you to “Jump, Dog, Jump” they can hear it in your tone. I’ve had some buyers really say some pretty mean things about agents. So when the buyers understands that they need to convey to their agent that they will stick with them. Then talk it over with your agent how you want to work and even ask for their professional opion. They just might know some things that can actually assist you in a better way than they way you want to work. Because if the agent thinks that you are just using them…..well you get what you give out!
    Jason Klein
    Replied almost 8 years ago
    where can I get copies of some of these items, such as the due on sale disclosure, lender notification form and lease option consultation agreement?
    Replied about 7 years ago
    where can I get copies of all Of these items, such as the due on sale disclosure, lender notification form and lease option consultation agreement? In am in Florida and have done a copule Of deals
    Benjamin Cowles from Cape Coral, FL
    Replied about 3 years ago
    Wouldn’t #8 invite the DOS? And are the tenants responsible for the first $300 in repairs because of the home warranty deductible? How does that work?
    Sulaiman Shah Real Estate Investor from Staten Island, New York
    Replied over 2 years ago
    Wow I really appreciate all the articles/blogs Jason Henson has written on Lease Options. This is some really valuable information.