How does the tenant buyer pay us?

19 Replies

So, I'm brand new and self educating by reading & watching videos....my question(s) how does the tenant buyer pay us?  Who pays for the background check & credit report?  If the tenant sets a 2 year lease purchase and at the end of the 2 years opts not to buy, the portion of his payments that is being held for down payment & closing costs, is that reimbursed back to the tenant buyer or does the seller get a portion?  Your responses are most appreciated  

If you are seriously considering this strategy this is one of those times you'd want to shell out for an attorney.  In general you would either pay or require the tenant to pay for credit report etc.  Who gets what at the end is going to be laid out in the contract.

Wow.  I'm not sure where you're getting your info on lease options, but if I were you, I would start burning the books and videos right now.

1 - The LO agreement is actually two separate agreements (not one), and two separate contracts.

2 - Never refer or mention the "other" agreement in either contract.

3 - Never, ever, give any credits towards buying from the Option Consideration

4 - Never ever give credits towards buying from any of the rent payments.

5 - The lease agreement is the agreement between the tenant and the landlord that allows the tenant to live in the property...for a fee.

6 - The Option Agreement, is the agreement between the seller and the future buyer, that states how much the seller will sell the property to the future buyer for, and how long the future buyer has to "execute" the purchase within the option agreement.

7 - The Option Consideration is NOT a down payment on the property.

8 - The Option Consideration IS 100% payment of the total cost of the Option Agreement.

9 - When the Option Agreement runs out (future buyer has not executed the purchase within the agreed time limit..see #6 above), the agreement to buy runs out...and there is no refund of the Option Consideration since the OC has nothing to do with the cost to buy the Property...it has everything to do with the Option Contract.

10 - Failure to do the above properly, can/will result in a judge ruling that this is in fact a Land Contract Agreement, and not a Lease Option Agreement.  This will mean 100% of the Option Consideration and 100% of the rent payments will be credited towards the purchase, and if the buyer chooses to not buy the property, the seller will refund all of the above back to the buyer.

@Russell Castillo , Hi

tenant buyer pays you like they would on any normal lease.  I can only speak from experience and tell you that we have all buyers pay for their own tenant screening with Paul Ritter, MyCreditTeam.com.  That most importantly will tell us how long the tenant/buyer needs to become "mortgage ready," and we make sure that their lease gives them plenty of time to accomplish that.  No one "hold" the buyers down payment.  That's yours and it is fully credited to them when they go to get their own loan.  Provided of course that you have the proper legal documents in your state.  All of our buyers sign with our attorney.  If you need clarification or what I'm saying resonates at all feel free to shoot me a private message and I can give you some this to check out.

Hope that helps,

Chris Pre

@Chris Prefontaine , you mentioned the buyers down payment is yours but then that it is fully credited to them when they obtain their financing.  Do you collect a non-refundable option fee and a down payment? How are those tracked separately if so and what options does the buyer have to pay down the principle?

Thanks in advance

Originally posted by @Chris DeSisto :

@Joe Villeneuve

Wow, do you know where? Does this happen often, cause I would think people never do a LO. I am new to all this and learning the ins and outs. 

 Lease Options are great...big money potential with very little money needed...and never spent.  You just have to know a few simple "dos and don'ts".  This is where I would suggest newbies start.

@Joe Villeneuve

I am learning the assignment of LOs. So talking to FSBOs and seeing if they want to sell their property that way instead. I could contact others too, but I was starting with FSBOs. I want to make sure my contracts are the best that they can be. I have a few things I need to clear up but everything you mentioned is how I am doing it. 

@Joe Villeneuve is right but .............

- 3 - Never, ever, give any credits towards buying from the Option Consideration

You will never get 10% or higher , IF you do not credit the non-refundable option consideration , to the tenant-buyer

You will be stuck collecting non-refundable option considerations in the 3% range

Originally posted by @Alex Mikhals :

@Joe Villeneuve is right but .............

- 3 - Never, ever, give any credits towards buying from the Option Consideration

You will never get 10% or higher , IF you do not credit the non-refundable option consideration , to the tenant-buyer

You will be stuck collecting non-refundable option considerations in the 3% range

 Not true....completely.

10% is very high for the OC in any case, but 3% is also very low.  I usually do (actually only do) Sandwich Lease Options, and both OC's are at 5%...coming and going.  This means I make money on the spread since my Option to buy is always higher than what I Option my Option Contract for.

Example:

Buy on Option - 
1 - Option Price = $80k
2 - OC = 5%...$4k

Sell Option Contract - 
1 - Option on Option based on $90k value
2 - OC = 5%...$4500

I make $500 immediately on the spread between the two.

@Joe Villeneuve Do you own the property, in some manner or other, that you lease option? You mentioned that you always do  Sandwich leases so to me that means you have a lease option with the seller and in turn, sub lease with an option to a tenant buyer. 

I think @Chris Prefontaine owns the properties he is lease optioning. Right Chris?

In my humble opinion it is better to own, then L/O, but a new investor doesn't have the funds or knowledge so either wholesales L/O or does a sandwich L/O.

Originally posted by @Vince Mayer :

@Joe Villeneuve Do you own the property, in some manner or other, that you lease option? You mentioned that you always do  Sandwich leases so to me that means you have a lease option with the seller and in turn, sub lease with an option to a tenant buyer. 

I think @Chris Prefontaine owns the properties he is lease optioning. Right Chris?

In my humble opinion it is better to own, then L/O, but a new investor doesn't have the funds or knowledge so either wholesales L/O or does a sandwich L/O.

 Why is it better to own, in your opinion?

Better in that you can avoid the slings and arrows of people who think you should be licensed. I understand that you may avoid spending your own money by lease optioning yourself.

@Vince Mayer ,

Not necessarily but yes that is one of the strategies that we use.  We buy rent to own, owner financing, subject to, and that includes "sandwich" leases which we call "SW."  Every deal is different and requires a different strategy.  All of our deals require little or nothing down so having funds doesn't have anything to do with it.  

Regardless of what strategy we use to acquire the property we always sell on a rent to own (lease option) that requires 3%-10% down payment.

@Vince Mayer you can avoid the "slings and arrows" but making sure that you use the proper agreements and that you do everything with a real estate attorney.  We provide all the docs you need in our QLS course.  We also recommend that anyone get accredited with the BBB.

Hope that helps,

Chris Pre

Interesting comments, here... Presuming that one is only ultimately grossing a few $thousands on the back- end IF the TBer actually "exercises their option..." then WHY (particularly nearing or at the TOP of the current "seller's market!") would you "stay in," a LO deal? (Especially if the second payday is only say 100- 300$ monthly, for say 1- 2 years?) 

I'm doing mostly CLO (Cooperative reassignments) and 18- 24 month SLO 'exits,' (B to C) following ST or Wrap acquisitions. (A to B agreement.)

Chris Prefontaine has the best value for a "creative terms" package, and they are averaging (presuming the deal 'closes' at the end) around $75k. per SLO and more for OF or SF deals. (I refer to "having the deed" as: Owner Financing, or Seller Financing when there are existing loan/s, acquired either "Subject To," or via a Mortgage Wrap." 

This is likely the SMARTEST WAY to do these ($25K.- 250K.) deals. The percentages vary by area. Our median home value here in Sonoma and Napa Valleys is around $700- 800k. That's 2x as much as Phoenix metro, and about half of much as parts of the SFO Bay area. For only $2500- $5k. WHY stay IN, the deal??? (I'd do a 'paper flip' option reassigned to the TBer, and be OUT OF that deal... unless I owned or controlled the property with more than an 'option?' (Deal Structures Hierarchy, 101. ;-)