We Use Lease/Options To Sell, To Reduce Expenses & To Increase Profitability

[Ken M.]

We Use Lease/Options To Sell, To Reduce Expenses & To Increase Profitability

It gets a little complicated so I'll try to make sense. When you want to provide financing to a buyer and you want to sell as a seller doing Lease/Options as creative finance:

1. I get 10% non refundable Option Fee upfront - on a $400,000 house, that's $40,000.

2. Yes, under the lease agreement you become a landlord and have all of the landlord responsibilities. However, in the separate document, the Option, the Optionee takes over responsibilities for maintenance & repairs. Now, the landlord/tenant laws generally make the landlord responsible for those items. So, included in the Option is a clause that the Optionee takes full responsibility for the property as though they already own the property. If they violate that maintenance clause, they lose the Option and the nonrefundable option fee. They are still tenants for the term of the lease, but no longer have the Option. Under the Lease agreement, they can still demand that I fulfill the Lease terms and fix the roof, replace the AC, repair the porch, which I will gladly do, but then they lose the Option. (the strategy has not yet been disputed in court, as most people just make the repairs.)

I had a call in Arizona during the summer once, it was 115 degrees, "Hey Ken, the AC broke, will you have it fixed" I said "sure, we always follow the contracts, let me take a look at the Lease and Option agreements" I texted the part from the Option agreement that it is their responsibility to fix the AC, "but I will have it fixed and we will throw away the Option". "The Option fee is nonrefundable". "Which would you like us to do" They said "don't worry, we'll fix it". I bought a floor AC Unit from Lowes and took it over for them to use for the three days it took to for them get someone out to repair the AC. There was no arguing, no confrontation, no problems.

2. When you own a property, you get the tax write offs and depreciation. When you sell a property you pay capital gains. About one out of three of our Lease/Options, "fail" That is, the Optionee decides not to exercise their Option. So, we re-Lease/Option for another 10% Option fee to someone new.

We treat people as grown ups and if they change their mind, it's their decision. We remind them that the Option fee is non-refundable. But we do offer to apply the Option fee to a different property if that is their preference. Any "improvements" they make stay with the house, of course. We remind people every 6 months, that it takes time to put together financing to complete the Option purchase. We document everything. We provide documentation that they paid on time, when they have paid on time.

This is all done by text, which is efficient and gives us documentation on what went on. Yes, I've won court cases based on text documentation. There are other "tricks of the trade" we teach those who want to use this strategy.