Lease to Own Documents

7 Replies

I have my first Lease to Own option lined up however I need to know the particulars as far as who fills out what paperwork.  Do I fill out a purchase agreement and letter of intent to lease with the owner, then the actual lease option agreement with the new buyer?  Who fills out what document?

I am assuming you are lease optioning from the seller and then assigning, not doing a Sandwich lease option.

This is the way I do it.

One the documents we have our letter of intent that basically says that I am acting as a principal in a transaction and the goal is to lease with an option from the seller and to assign the deal to tenant buyer. I am in no way acting as a real estate agent and I am acting as a principal in a business transaction for profit.  (You can be licensed, and it is recommended that you are.)

The second document allows me to lease the property for certain time frame usually 1 year with possible extensions for a certain amount of monthly rent.

The third document is option to purchase agreement which allows me to purchase the property for certain amount of money within a certain time frame.

Now I use an attorney to create the lease and the option from the seller to me the tenant buyer.

Then I market for tenant buyer in craigslist postlets.com etc.

When I find tenant buyer that likes the property I'll use an earnest money agreement where the tenant buyer enters into an agreement for earnest money to enter into a lease option agreement. I asked for 50% of the option payment made out to a title company or an attorney's trust account. I want a canceled check from the tenant buyer not to be in my company name but in the name of an attorney or a title company.

I bring the earnest money agreement to the title company or attorney's office, and then the tenant buyer receives seven days to get a property inspector through the property to be fully satisfied that the property is in good working order.

If all goes well, tenant buyer will go down to the title company or the attorneys office and enter into a lease option with the seller, bringing with him the other 50% of the option fee and first and last months rent for the lease.

I have an assignment agreement that assigns my lease and my option tenant buyer for a fee. Every states different, and some states it is better to use an option release document instead of the assignment agreement.

The tenant buyer NEVER gets possession unless all money is delivered.

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

Hi Brian,

It seems like the sandwich L/O will generate more income for an investor, and from what I've read the risk is not that outrageous as long as you have an attorney approve the contracts.

How do you calculate the option assignment fee for these L/O deals?

What is the benefits of assigning a L/O over going the sandwich L/O route?

I have never done a lease option to own.  I assume it is the same as a land contract?

I do have a question about the subject.  Does the owner have to own the property outright?

Originally posted by @Mike P. :

Hi Brian,

It seems like the sandwich L/O will generate more income for an investor, and from what I've read the risk is not that outrageous as long as you have an attorney approve the contracts.

How do you calculate the option assignment fee for these L/O deals?

What is the benefits of assigning a L/O over going the sandwich L/O route?

 Hi Mike:

The average REI can't afford a Sandwich LO as the REI is basically guaranteeing the payment to the Seller. This can make a big mess legally and ethically.

The assignment is easier and cleaner for the new investor.

If you can bank 3 months expenses to assure the Seller he she will be paid even if the Tenant Buyer defaults, and you can get the 3 spreads (option fee, rent and back end) then by all means go ahead.

@John Jackson  may want to add to this.

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

Originally posted by @Brian Johnson :

I have never done a lease option to own.  I assume it is the same as a land contract?

I do have a question about the subject.  Does the owner have to own the property outright?

 Brian do you want to buy on a lease option on sell on a lease option?

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

I have thought about the idea of buying and convert to a rental.  I have never considered it until I started reading BP.

Hi Brian

Lease options and seller financing are different kettle of fish compared to buy-and-hold renting out.

One of the biggest things about selling houses on terms is getting the property back if the tenant buyer does not pay you.

This takes an education of legal issues in your state if you're in Lexington Kentucky I would first get a good contract lawyer that deals in real estate matters. Need to understand that if you have to go to court how can you quickly get the tenant out.

Usually if you have a lease and straight option without rent credits you can repossess the property if they default on the lease. Follow landlord-tenant law and don't try to get the tenant to do things that are not supposed to be doing like maintenance.

If you sell on something else like an a contract for deed, they own it and can do whatever they want to it, but generally you hold the deed until they finish paying you off.

If you sold on subject to you would not have the deed anymore.

If your property was free and clear you could sell on installment sale.

A lot of people like seller financing because they can hold a note, charge interest, and not have to keep renting property out as opposed to buy-and-hold investing. This pluses and minuses to both.

And as of January 10, 2014, new laws from the federal government have required the seller financing deals where people are living in the property have to have some kind of ability to repay rules followed. It is wise to use a registered mortgage loan originator and have they registered mortgage loan originator create the appropriate documents.

I like lease option assignments and leases with ROFRs or right of first refusals. On free and clear houses I like to offer payment for their equity with good terms for the seller.

Good luck learning everything here at biggerpockets!

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com