Easiest way to Lease Option in Texas?

Question

Hey BP Fam,

I'm a local investor in the Houston, TX area. Wholesaling is my usual strategy, however, I've been learning how to do Lease Purchase deals. Come to find out.. Texas is "One of the strictest" states to do Lease Option deals with a tenant buyer.

I've heard some investors say that you can still do them in Texas, but you must have "Fee Simple Title"?! I've also heard some investors claim that you can do it with a Subject-To deal with the Seller.

Someone please clarify this for me! Thanks a million :)

Brian Gibbons · Answer

Best information about lease options in Texas

https://www.lonestarlandlaw.com/Executory.html

John Jackson · Answer

HOLA!!! @Roger DeReu. @Jerel Ehlert, @Andrew Taylor and everyone else!! If you all have a specific question then fire away!  Jerel, you are incorrect about a sandwich lease option in Texas. The reason you can not do a SLO in TX is the SELLER must have fee simple title.  Has nothing to do with the mortgage or being free and clear.  David Willis with LoneStarLandLaw is an attorney and he is unfortunately wrong on his lengthy write up on his site about lease options.  He is confusing the statutes regarding contract for deed with those for a lease option.  HUGE difference.  I do 1 year lease options and my documents cost about $30k with different attorneys and firms.  The best attorney I've ever used helped draft my documents, and even created much of Title 2 Ch 5 TPC, so he knows his stuff. He's retired now unfortunately.  Fire away if there are specific questions.  Shoutout to @Brian Gibbons !!

Roger DeReu · Answer

I've been looking into this for over a year and whenever I find 2 lawyers I get 3 opinions.

I've also spent a fair amount of time on Lonestarlandlaw.com and have come to the conclusion he wants everyone to quit being a real estate investor in Texas. Note many corporations regard the legal team as the anti-sales team.

Yeah, you gotta stay safe but doing owner finance with no balloon is going to make you a happy person UNTIL interest rates soar back up. *Maybe* all your buyers will move/refinance before then, maybe they won't. Here in San Antonio most investors I know doing O/F are pegging rates at about 7% because they simply CAN'T go higher and still have an affordable payment for the buyer.These same attorneys will tell you that you can only do 1 O/F per year with a balloon so you aren't trapped in the deal for 30 years (potentially). Others will say use different entities to get around that; the lawyers will come back and say the state will aggregate owners behind the entities.There are quite a few people doing L/O though not sandwich here in Texas. I've never met him but heard a lot about John Jackson - chime in if you know whether he's legit or asking for trouble.Bottom line is that investors perform a valuable function in the economy and I wish the state would recognize that and rewrite any statutes that risk financial Armageddon to anyone who simply fails to cross a "T" or dot an "I"

Andrew Taylor · Answer

This is the gospel. Pay particular attention to the penalties if your buyer wins a judgement against you. Really all depends on your tolerance for risk.

Jerel Ehlert · Answer

Regarding TEXAS law...

Unless the property is free and clear, a sandwich LO with a consumer is prohibited.@Cody L. the issue is when there are too many bad actors in the market taking advantage of consumers, then the government MUST intervene on their behalf.  I'll spare you the cases that made restricting executory contracts necessary.

btw, "freedom of contract" was debunked by the US Supreme Court holdings in the late 1800s to early 1900s.  You cannot contract for illegality; you cannot contract for confession of judgement; only in some instances can you contract away your rights.  This is about sophisticated investors taking advantage of unsophisticated buyers.  As I said above, not all investors were taking advantage of consumers, and not all consumers were unsophisticated, but enough of both made this necessary.

I have had to sue bad investors in federal court for violations of TX property law and Dodd-Frank/CFPB, as recently as last year.  I was called today by another buyer for a case against *the same bad actor*.  This time his acts are even more egregious.  If these keep coming up, Texas investors will get even more restrictions.

To sum up, investors invite government restrictions by failing to police themselves.

Jerel Ehlert · Answer

Do a search on BP for the dozens (hundreds?) of other threads on LO in Texas.  With a consumer on the receiving end, not worth it.  Sell on a wrap or owner financing.  With an investor receiving, game on.

Kevin Wood · Answer

@Michael Batts I know a guy that for 30 years has made agreements in Houston with renters where they can buy the property for an agreed upon price. So if someone's credit is bad he'll let them pay rent for a year or two and then allow them to buy at a price they agreed it when they started renting. He hasn't had one issue doing it that way. Then once they have met the rental requirements he signs a seller financing contract. It's not an exact lease purchase, but it accomplishes a lot of the same goals.

Cody L. · Answer

Wow, once again I'm a moron going against the grain.I've done LO in Houston several times.  On both ends.  Maybe I've just got lucky that nothing went wrong.  But I have the (incorrect, I'll admit) mindset that two free individuals can come to an agreement between themselves for whatever works for both of them.   If I want to do a LO, as does another party, it's none of the states G**am business IMO.    Then again, I've done 1000 wraps back when I was starting and took the DoS risk, so never copy me.

And yes yes, I know, gotta do what big bro says but I'm of the mindset that if you're working with another person in good faith, things will work out okay.

Eric Kephart · Answer

Only if you own it free and clear and it was a <6 month arrangement would I even remotely consider it, and then only as a last resort.

IANAL, but what I understand is the disclosure/timing requirements are VERY strict and the damages if something goes wrong can be nearly as bad as flat out losing the property.

Brian Gibbons · Answer

@John Jackson

Easiest way to Lease Option in Texas?

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