Hi,

I just sent a Ron LeGrand lease option agreement in to my lawyer for review. She came back and equated it to a contract that some furniture rental places use with lousy credit customers who they can charge late fees up the ying-yang with. She said the state of MN takes a very dim view of these contracts because so few buyers ever exercise their option on them.

I am trying to use it to do a sandwich lease option but was told by her I should try to use a contract for deed instead. I'm not crazy about this idea because I believe I would have to put a whole lot more down. I was planning on taking over payments basically (or have a minimal option deposit) and charge a larger one from my tenant/buyer.

Does anyone do lease options in MN? Have any of you run into trouble with the law for doing these?

Hello Cranmer, I am involved with a lot of lease options in North Carolina and I can tell you that some attorneys tell me that they will not close or even like lease options and there are some attorneys who helped me figure out how to close them. I would say you should try to find an attorney in your area that are investor friendly and willing to help you find the best way to set them up. Hope this helps good luck.

Are Lease Options a scam to fleece people?

I'm not sure if that was the intent when they were first conceptualized, but several people have used them for just that purpose.

They certainly CAN be used unethically. Texas has ridiculous rules about them now because a bunch of idiotic investors here couldn't use them ethically.

If you structure anything with the intent not to honor the agreement as written it will be unethical. As long as you do what you say you are going to do and everyone agrees on the terms up front there is nothing wrong with the agreement. This holds for lease/options as well.

The problem is that there are a bunch of moron gurus running around telling everyone to set the strike price on the option so high that the property won't appraise properly and the tenant/buyer can't reasonably exercise the option. That is unethical IMO and is probably against some laws if you get taken to task for it.

You may find alot of negativity towards Lease options and even more so against SLO's as there have been several actions against investors, brokers, and loan officers. This is especially true in my state. As a result, not many RE brokers will allow their agents to use LO transactions.

The press has been so negative towards LO's in general, that most people have stopped using the term lease option in their advertising and instead use seller financing.

SLO's are actually considered a scheme in this state so attorney's are not recommending their use here at all and instead recommend a contract for deed.

Personally, I think LO's can be used ethically, but require optionee pre-qualification and should include a credit building class or consultive requirement. You'll find, that when doing them properly, the margins are not all that great and may actually be better off being a landlord.

IMO, SLO's are best used as a low or no money down sales pitch for Guru's to sell their courses.