Are you having success selling on lease option?
Investor · Victor, ID · Member since 2018 · 7 posts · 1 vote
I'm curious to hear from folks actively selling on lease option about their buyers' experience in refinancing out of the lease option period/agreement. Provided that they are creditworthy, are your buyers consistently finding lenders that will refi a lease option and consider the lease period as seasoning? Or are the buyers having to bring more cash to the table to refi? Thanks for your input!
@Brady Grohne - You can't refinance something you don't own. Seasoning doesn't begin until you're the actual deedholder on the property.
A lease option is just a piece of paper that states you have the right to purchase the property for a certain price, before a certain date. It's not ownership
I purchase a house with a lease option to purchase. I did end up with the house after paying an attorney $50,000 and a court case that took 5 years to settle plus I had to pay an extra $150,000 for the property.
The deal started with the purchase of a house on 7-1/2 acres for $225,000. The entire parcel was 17-1/2 acres and the seller promised that the paperwork for the split was 100% completed. So, like a fool I paid the seller $100,000, signed a lease option and the seller agreed that I could remodel the house.
As soon as I started remodeling the house the seller filed a lawsuit stating that I destroyed the value of the house and claimed he could no longer get a loan against the house I was purchasing. Does that make sense?
So, I hired an attorney and every time I thought I had a plan to settle with the seller my attorney purposely made the seller angry so he could get more money from me.
The seller purchased 100 acres in northern California, moved his horses there and went bankrupt. So, the seller decides he is still the owner of the house I am purchasing and he backs up his motor home against my front door so I can't get into the house and he connects to my electric and water.
I called the police and I ended up in jail because I did not have papers in my pocket proving I was purchasing the property and the sellers told the police I was a liar and a squatter.
At the end of 5 years, I sort of won the lawsuit. I ended up with the property for the $225,000 as per the leas option, but the judge told me I had to purchase the other two 5-acre pieces for a total of $150,000 making the total purchase price $225,000 + $150,000 + $50,000 for legal fees = $425,000.
After 5 years, I never moved back onto the property. I spend about $200,000 remodeling the property and had a total of $625,000 in it. The really dark part of this story is I put the property on the market for about $500,000 and did not get one offer for about 5 years. Now, I've been sitting on this property and paying to maintain it for 10 years.
So, on one both unlucky and lucky day, a buyer offered me $200,000 cash for the property. On the same day, a real estate investor called me on the phone and asked me how much I thought a 14-unit property was worth. I told the agent I thought the property was worth $800,000 when it was really worth $1,400,000. The following day the agent called and said the seller would take $825,000. I took the $200,000 offer for the 17-1/2 acres and purchased the 14-unit apartment building with a $200,000 down payment. Today the apartment building is worth about $3.9 million.
Too many things can go wrong with lease options. A buyer can destroy the property and contractors can put liens on the property that the seller cannot afford to pay. Poop happens, people change their minds and it costs too much money and time to go to court. There are too many normal purchases that can make a lot of money and no reason to subject yourself to the risks.