Lease option in Tennessee

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What do you think of these terms? Purchase price of 105k 2500 option payment paid over 3 months 1000 month for the first 3 months and then 1200/month for the rest of the year. 1 year lease term Do any of you go with a more standard lease or do you just take repairs out of the option payment?

Usually go with non refundable down payment, some type of monthly credit towards their purchase (only if negotiated ), buyer responsible for all repairs ( assuming home is in good condition when they are buying it) and if they are not able to execute at the end of the lease term offer an extension period with possibly a little more down payment.

@Craig Smith the mentors that have coached me with lease options have given me different advice than the poster above me gave. Let me tell you what they advised me to do.

1. Don’t call it a down payment because it is not a down payment, it is an option payment. The money they give you is buying an option to purchase something at a specific time. Just like buying options in the stock market does not give you the stock but only the option to buy the stock for a certain time period.

2. You do not want this to look like a mortgage. If it does, you may be fined big fines for creating mortgages without a license. Thus you don't give credits towards the mortgage. If they ask why not, you can tell them that laws were passed limiting non-mortgage brokers from creating mortgages or anything that looks like it could be a mortgage. It also makes it easier to evict someone who is not right for the property if they they have no equitable stake in the property. But if they do, then you have possible court proceedings to get them out of the property.

3. $2500 seems too low. Our option fee is $3900 to $10,000 depending on the price point of the property. Also, you don’t want to split up the option payment. Every time we do we regret it because that means that we are putting someone into the property that doesn’t have the resources to save money and pay the option fee. It is more likely that this person will have issues paying the rent and won’t eventually be able to purchase the home (unless that is your strategy, but it is not ours).

4. After the first year, the lease amount in the agreement increases $50.  And it increases 1-3% every year after that.

5. We do 3-5 year lease options to give the tenant time to repair their credit. It also gives us time to have them pay down our mortgage over a few years which increases our overall profits. 

6. You want to use 2 separate contacts. A lease contract and an option contract. You also want these contracts to be in compliance with the Dodd Frank act. If they are not and there is a predatory lawyer, you could end up paying 50k plus refunding the tenant their rents for up to 3 years. So you may want to double check on that one.

Lease options done right can be beneficial to everyone involved and can be really lucrative. If they are done wrong, they can cost the investor a lot of money and time in court. Hope this helps.