first sale on lease option - terms?

3 Replies

Hello, I am selling my first house as a lease option.  It was a straight rental, so I am familiar with that paperwork, but looking at the lease option contract, I think I may be forgetting something...

Those who give rent credits, i have heard to not call it that in the contract.  Is "discount on purchase price" better verbiage than "rent credit"?

Do most of you use a 2 year term?

The term is up to you.  I don't see many that extend beyond 3 years.  Lenders can consider that a 'sale'.  Depends on your situation. If 2 years works for you, it is usually plenty of time for the tenant/buyer.  If they can't cash you out in 24 months, they probably won't ever.

I never combine my lease with my option.  The lease you have is probably fine. Add they are responsible for the 1st $100 or $150 in repair expenses. Don't mention the word purchase anywhere in your lease. Just do a separate exclusive option to purchase and charge Option Consideration for the privilege.  For rent or purchase credits, just have the price decrease over time in the Option. "Purchase price if exercised by xx/xx/xxxx is $____.  If exercised between xx/xx/xxxx and xx/xx/xxxx it is ($2400 less or whatever)"  Reference in the option that if Optionee is leasing the property, they must be current for the option to be valid.  

This is probably a DIY project. I have years of experience and just touched on some broad-stroke key points.  If you reference purchase/own anywhere in the lease, you may be forced to foreclose if they don't pay.  View recorded Options online in your county to see how they are worded. Some may just be a memorandum of option.  Draft what you think it should look like and have an attorney review it @Laila Marker !

Oops!  Beginning of last paragraph forgot the key word NOT.  This is probably NOT a DIY project.  :)

Steve,

Perfect.  Thanks for all the info.  I got some generic option contracts from another Investor that I am modifying, and was planning to have it seperate from the lease.

I also think 2 yrs is ample time for them to clean up their credit.