I'm generally familiar with the lease purchase vs lease options and generally familiar with the risks. I've seen a myriad of forms which are generally the same. Where I need some advice or opinions are on the following:
Guidance on terms structure, dn pmt, monthly payment, length of initial term, owner carry at expiration or buyer financing, etc
IF Owner carry is an option at expiration, what has to be done to complete a wrap?
Specific Worst Case Scenarios
The house a mortgage balance of $63K, sell price is listed for $78K, current rental rate about $850, 3br, 1 ba, 1400SF
Any advice is appreciated.
Lease for 900 a month, set the exercise price for 82,000, 12 month lease, discount of $50 if it's paid by the first of the month, tenant can extend the lease for another 12 months if paid on time
Create a lease, an option and a sale and purchase agreement, create a letter of intent to lease purchase
Charge 3 % non refundable option
Make sure the tenant buyer that moves in has a good chance to get the mortgage by having their 1003 app looked at by a mortgage broker
Ok thank you. What I'm looking at is a lease purchase not a an option. They want to make a down pmt with a purchase in 24 months by their own mtg or an owner carry via a wrap. Make sense?
Substitute the 3% option with 3% earnest money and have them use that in a sale and purchase agreement
lease option = at the end of 24 months they could purchase lease purchase = at the end of 24!months they Will purchase. they have a $20k dn pmt.
Think of a lease purchase as a sale and purchase agreement with the lease,
or a delayed sales and purchase agreement with the delayed closing date and a lease
Gotcha. Don't think it matters either way. At the end of 24 months, if they can't perform, you get the property back either way (and the $20K). Whether you call it option consideration or a down payment, it's really the same. Many gurus teach to have a separate lease agreement and option agreement and call the down payment " option consideration", but I can tell you from experience that if the tenant buyer wants to fight you in court, the perceived benefits of structuring it this way are out the window. I am not an attorney, just an investor that has experienced this first hand.
thank you very much for the advice and I agree there's basically no difference in the bottom line.
Would a contract for deed be a better option? I'm not very familiar with those
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.