Is there a formula or template for structuring lease options?

Question

Hello. I'd like to try purchasing a rental unit using a lease option.  Does anyone have a good formula/ template that they start with?  For example:

1. How much do you generally put down?

2. How long does a typical lease option run for (i.e. 3 years)?

3. Is there anything else I should put in the contract?

While I understand that each lease option contract will vary depending on the seller, I was hoping someone might have a good formula for what to offer initially to the seller. Thanks.

Jack Shea · Answer

I use two templates for lease options. 1) a lease purchase contract taking all the burdens of ownership; maintenance, taxes, mortgages, etc. You can then depreciate the property without owning it. You can do a 1031 exchange upon the sale with the profits, without owning the property. If the market sinks, you do not lose. If it goes up or stays flat you win. 2) For tenant options, I use a Contract for Option, which transfers no ownership benefits to the tenant and they can be evicted.

Brian Gibbons · Answer

You are in HI and I would get the Lease and Option from the HI Realtors.

Lease is 30 months with extensions, rent under market rent.

Option to purchase (when buying) try to offer $100 in option consideration.  Exercise in 30 months.

Steve Vaughan · Answer

I try and pay about 1% option consideration for 30 months.

"Down" sounds like down payment, which it ain't.  More than 3% for just the option to buy is stupid, Lawson.

Anyway, keep it simple. Don't do a bunch of work to something you don't own.

Lawson Ott · Answer

rule number 1:

ask them. "he who open mouth first, winds up with foot in mouth"

most sellers would love 20% down. most of those are willing to take 10-15% down. a few will take 5% (or less) down.

standard LP is 2 yrs, easy to get 3 though. 5 is pushing it, but can be had.

Is there a formula or template for structuring lease options?

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