When using lease options with the seller.........

10 Replies

Would I have to come out my own pocket? I never done lease options before. Once I sign the lease option agreement with the seller and find a tenant to put in the home then have the tenant to sign their lease agreement from me, wouldn't I too have to come out of pocket to put down the option fee at the time the lease option agreement is signed between me and the original seller? And that's if I cannot get a tenant in the home quick enough. I'm not sure how that part works.

In reality, yes, the option price is out of your pocket and I'd say you have the reality of it rather than how these are promoted. Things need to fall in place, it can be difficult to design and manipulate the seller and an end buyer to make thins work. The profit in these areas of RE is probably better in selling the program or concept than properties. They are good to know so you can use these when the situation arises, making the situation arise is the hard part. :)

@Antonio Bodley If you are talking about a sandwich LO, where you are making payments to the seller, and the tenant is making payments to you, then you would need to pay the owner something for option consideration, but that can be as small as $10 or so.

It sounds like LO's are fairly new to you, so I would not recommend a SLO for your first time out of the gate.

Just focus on a LO Assignment, where you are assigning yoru contract.

I see the word alert system is working... LOL :)

Agree with John, don't begin trying to do a SLO. Didn't watch Brian's ad, I'm out of popcorn.

If a seller/owner agrees, your consideration could be your promise to marry his ugly cousin.....oh wait, no, an option can't be based on performance of the optionee (you). Might give them a box of cookies, see if they agree to that.

Skilled negotiators can get an Eskimo to take a truck full of ice.

Understand that any contract only guides the parties to an agreed transaction, if both are agreeable, I've done handshake deals, that may work. It's when the contract is challenged when consideration becomes an issue. In RE, consideration must be appropriate for and in the scope of the value of the transaction. An option price is usually seen as 5 to 10 per cent of the sales price, paid in cash or it's marketable equivalent. :)

@Brian Gibbons Thanks Brian. Your video was helpful. I am looking for a home of my own and at the time the idea of using a lease option for myself also seem ideal, especially on a duplex I would like for myself. I was only looking for options where I can find me a new residence for myself and make some extra income on the side by living in one unit and renting the other unit. Now I do have money saved up to put towards a down payment, so that part is covered and my current job is steady right now. The pay is not quite enough, but still steady. My biggest concern with this sandwich lease strategy was not being able to have a tenant buyer already lined up to move in the home, which you covered. I could end up paying for this home out of my pocket because I cannot find a tenant ready to take my position in the lease option as the tenant buyer, which the original seller knew nothing about. Merry Christmas to you.

@John Jackson Yes I am talking about sandwich lease option. Would a seller seriously take a $10 option fee? I figured it would be much higher than that.

@Bill Gulley A lot of times this strategy is made to look so easy, but I had to look at it from my side of this transaction where I would have to pay up the option fee the same way I would have a tenant buyer pay me an option fee. The ones doing the promoting about how easy SLO is and how much money can be made doing it never did cover the reality of this SLO. I can think of one person in particular who promote these ideas.

@Antonio Bodley Yes, our company gives the owner $10 option consideration, just as you typically give $10 consideration on a deed when you buy a house.

However, I didn't realize what you were trying to do...

Duplexes aren't the best property to find a T/B for, so if you move forward on this I would market the other side as either a LO or a straight rental.

I also wouldn't look to move forward on this if you can't cover at least 2-3 months of the other side being empty, and you better know how to screen an applicant very well.

I have the feeling from reading your post that one or two hiccups in this arrangement could really hurt you, so just make sure you have the reserves to cover yourself.

Also, in this situation, the owner will most likely want at least 1-3 months or so as option consideration.

Also Antonio, reading your comments about your job and income....I think it would be very wise to make sure you could even qualify for this property assuming your scores were ready. Keep in mind as the buyer you have to qualify for the whole property, not just one side, unless of course the other side is either purchased or you are able to purchase just one side and it's deeded seperately.