How do you structure a Lease option

[Brendon Rogers]

I’ve been curious as to how people are doing their lease option agreements. I initially wanted to buy a property with hard money refinance cash out and do a owner finance to a prospective buyer. (wrap around mortgage) After speaking with real estate attorney he brought up the due on sale clause being possibly triggered in those kind of transactions. He says he does lease option in those kind of situations to avoid the due on sale clause. So my question is how do you run the numbers on a rental property like this? Do you use a property manager to collect the rent or loan servicing company? Does the rent that the tenant pays go toward paying down the agreed price? Then when the option period is up they pay the remaining amount? I’m just curious how people are doing this and how you run your numbers.

[Collin Goodwin]

A lease-option should not be construed in other way than the way its intended. A lease, and an option to purchase. I entered a lease option on a 30-unit RV park. I leased the park for $1000/month and bought an option for $10,000. I had my attorney draft up both for $2500. They were executed separately and the option was filed on record. Essentially it clouded the owners ability to sell the property until my option expired. If I were to buy they property in the future, the $10,000 would be applied towards the principle. I decided not to buy after everything was over. I was thrilled to have done a lease option because I was simple able to walk away after the lease. My $10,000 stayed with the option-holder, but I was able to make it back multiple times in cash flow. Hope this helps frame the scenario.