Opinions or actual experience with Purchase Option Agreements

6 Replies

I am half way into reading a book about Purchase Option agreements and would like to get some feedback from others about this REI approach.

First let me say I thiink the idea is great and can be a win win for both parites with proper planning. For me its a great blend between wholesaling and landlording. While the transaction can be complicated, it can be mitigated with the PA being written with protective clause and subject to lines  that both the buyer and seller should be protected.

That being said I would love to hear anyone's opinions, good or bad and even better their experiences with these types of RE deals.

Additionally, if anyone from Oregon has any experience with these types of deals you get bonus points.

Thanks in advance!

Tommy

Are you talking about a sandwich lease option? This is where you lease option from the owner then re-lease option it to a tenant buyer and  make money on the spread.  I personally think this is one of the riskiest types of deals in real estate.  

The people who push this seem to ignore the risk of vacancy. This is particularly a problem when it is suggested as a way to make a marginal deal work. 

I am sure @Brian Gibbons could comment here and probably give you a very different  view than I have.

Now if you are not talking about a sandwich lease and just a basic lease with an option for you to buy, that is a sound technique.

@Tommy White

It would be helpful to know the book and the author.

Do you want me to guess? :)

I coach 1 on 1 :

leases, options, sub2, wraps, master leases, master lease options on commercial, private lending, joint venture partnering with sellers, joint venture partnering with money partners, etc.

Being a one trick pony is not good.  Be a transaction engineer.  Give the seller a cash offer and 1 or 2 terms offers.

Originally posted by @Ned Carey :

Are you talking about a sandwich lease option? This is where you lease option from the owner then re-lease option it to a tenant buyer and  make money on the spread.  I personally think this is one of the riskiest types of deals in real estate.  

The people who push this seem to ignore the risk of vacancy. This is particularly a problem when it is suggested as a way to make a marginal deal work. 

I am sure @Brian Gibbons could comment here and probably give you a very different  view than I have.

Now if you are not talking about a sandwich lease and just a basic lease with an option for you to buy, that is a sound technique.

Yes that's the general technique among others described in this book. If vacancy is the issue couldn't a buyer(s) be prescreened to allow the smooth transfer between the current owner and a new tenant? I do see the risk though. 

Actually I was considering this option with my own primary residence if the bank will allow it.

Originally posted by @Brian Gibbons :

@Tommy White

It would be helpful to know the book and the author.

Do you want me to guess? :)

I coach 1 on 1 :

leases, options, sub2, wraps, master leases, master lease options on commercial, private lending, joint venture partnering with sellers, joint venture partnering with money partners, etc.

Being a one trick pony is not good.  Be a transaction engineer.  Give the seller a cash offer and 1 or 2 terms offers.

Brian if you guessed you'd probably be right. It's one of the books recommended on this site... 

Making Big Money Investing in Real Estate: Without Tenants, Banks, or Rehab Projects by David Finkel.

And I fully agree with you about having options to solve the seller's problem. 

I'd be open to coaching depending on the cost. Since im just a few months into my REI career I'm not 100% on the exact direction I'd like to take. Lease options seems like a positive route

What banks allow is minimal.  Read the mortgage and the note.

How long have you had the house mortgage? FHA has rules.

I would read the due on sale provision.

Due on sale clauses can be triggered (not will be triggered) by lenders.

See

https://www.law.cornell.edu/uscode/text/12/1701j-3

Consider a "Lease plus a ROFR" with your residence.

See

http://bundlr.com/b/rofr-right-of-first-refusal

Originally posted by @Tommy White

Actually I was considering this option with my own primary residence if the bank will allow it.

If renting your property makes sense then a lease option can be a great deal. The bank shouldn't have anything to do with it. You can rent out your own property. Tenant pays you rent. You pay the mortgage payment to the bank 

Now the bank may be able to call the loan  due with an option, but how is the bank going to know about the option?

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