Texas Lease Options

8 Replies

Since this affects us in Texas greatly, I thought I'd start a thread. If anyone has any of the specifics of it, the general concensus I am getting is don't do them. I've heard some rumblings about there being a loophole if they are 3 years or less, but even then, the tenant buyer has many many rights that would prevent us from even using it as a feasible option. A law passed in January of this year that prohibits us from doing it. This affects our purchasing subject to as well. If anyone has any more specifics, that would be great.


The new law you are talking about is known as, "Texas House Bill 1823."
If you do a Google on it, you will find a lot of links with specifics.

The changes didn't make doing a lease option 100% illegal. Rather it created so many restrictions that even the top pro's are all saying, "Don't do them!"
[b]Here's a few of the main points:

1- No option period can exceed 180 days.
2- There can be no money owed against the propety
3- Violaters will be fined $250 per DAY up to thirty days, each day
after 30 will be fined at $500 per day[/b]!

The law is expected to be abolished or revamped when the next legislative session meets in 2007.

Hope this helped.

Jim Watkins

Jim deals a lot with investors especially in that area, as do I. One other point to make is that some investors, as a result of this new law, are going to an owner finance. There are a couple of ways to do it. The biggest obstacle is the Due On Sale clause. Some companies have come up with ways to deal with that. Whether it is using a wrapped Deed of Trust or having a lender relationship in which they waive the Due On Sale clause. Either way, an investor group called TxREIA has a PAC geared toward fighting for investors rights. They will be pretty busy in working on getting the legislation to revamp that law.

Lee Warren

You made it! lol

Glad to see you stumbled upon this site. It's got a lot of good threads/posts and a wide variety of useful real estate topics.
You should post the web address of your company, Lee.

To all others reading this post,
Lee works for one of the leading authorities (making Lee one too) on investment real estate. The information I posted on the Lease Option Law came directly from him.
His company is the ONLY property management company I will refer any of my students to. They manage residential properties within a 250-mile radiusof Dallas/Ft. Worth.
Lee is the go-to person there.

Jim Watkins

Thanks for the kind words Jim. I take back almost everything I said about you. ;)

I didn't want to post the site because I didn't want to sound like an advertisement. If people are interested, I would be more than willing to give them any information that they might want.

Lee Warren

I've read up on the house bill 1823 that was passed in Texas a couple of years ago, and have a couple of questions about lease options currently. A friend wants to sell her house outside of Houston using a lease option, and wanted me to help her with it because I have more knowledge on the subject than her.

What do investors in Texas do when selling their houses on a lease option? I've read several different things, making sure it is under 3 years for one, but also some have said to create two different contracts completely, one for the option and another for the lease.

She was thinking about purchasing a form online and using that for the lease option, however, with the legalities that I've read about it seems better to get a lawyer to draw up a contract specifically for her.

Those are the main two issues I was thinking about, and any answers would be appreciated. Thanks


My advice would be to get a lawyer to draw it up. It may cost a little now, but it will save you a lot in the long run. You still need to keep the lease option for under 6 months. You can no longer do the three year lease option. Furthermore, once you do a six month lease option, you cannot renew it.

Lee Warren
Broker/Property Manager - Prospect Realty, Inc.
Licensed Home Inspector #8411 - Prospect Inspectors, Inc.

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