Creative Lease Option for my rental

Member since 2020 · 13 posts · 1 vote

I currently have a house for sale in Soldotna, AK. Currently listed for $289,000 it’s a 3bed/2bath 1000sq ft. Can you tell me what you all think of this?

Lease Option Payment $75,000

Monthly installments: $1500

Term: 3 years

50% of payments go toward purchase price

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Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

Real good advice from @Joe Villeneuve and @Bill B.

Option payment at 30% of purchase price is probably not realistic. Most investors on the “sell” side would accept a $10,000 option fee.

Private Mortgage Financing Partners, LLC

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3d
I don’t know if you find someone with $75k laying around who can’t qualify for a mortgage but if you do….
Make it at least 5 years, or you can’t give rent credits. Check your state laws for more restrictions, be ready for a minimum of $75k in damage to the house if they can’t purchase at end of the term. Don’t forget you are still responsible for all repairs while it’s being rented.
Lastly, consider you didn’t know these obvious things Google could have told, you. What else don’t you know? Please be careful if your intent isn’t to just keep the lease option payment and repeat. If it is, be VERY careful. Maybe just do standard seller financing with a 5 year balloon. Good luck.
- Federal Minimum for Balloon Payments: If the transaction is treated as seller financing under Dodd-Frank exemptions, any balloon payment cannot be due in less than 5 years (60 months). [1]
- State-Level Strict Limits: Certain states heavily restrict long-term lease options. For example, Texasrestricts lease options to 180 days (6 months) or less; anything longer is legally classified as an executory contract subject to severe penalties. [1]
Key Structuring Thresholds to Avoid Dodd-Frank Encroachment
To ensure a lease option stays a lease option—and doesn't accidentally trigger federal mortgage underwriting laws—comply with the following guidelines:
- Eliminate Rent Credits: Do not apply a portion of the monthly rent toward the final purchase price or down payment. Rent credits create equitable title, converting the lease into a disguised installment sale covered by Dodd-Frank.
- Keep Agreements Independent: Draft the residential lease and the purchase option agreement as two separate, standalone documents.
- Upfront Option Consideration Only: Charge a non-refundable, upfront option fee rather than monthly equity accumulation.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3d
Don't give rent credits. That will only get you in trouble. Just calculate what the total rent credit would be if you did give them monthly rent credits. Subtract that total from the option price. This way, you're not giving any credits, The buyer gets the value of the would-be credits (but only if they exercise their option), and if they don't exercise their option, you still get the full rent amounts.
There would be two contracts involved, the option contract, which gives the buyer the right to buy at a guaranteed price, and ultimately the contract to buy. These are two separate contracts. The money upfront is the cost of the option, called "option consideration". The option is a contract to buy the property at the seller's option. They are paying for that right to buy at the agreed upon price. There is NO credit given for this.
NEVER connect the rent agreement and the option agreement in any way. They are separate contracts.
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
2d
Real good advice from @Joe Villeneuve and @Bill B.
Option payment at 30% of purchase price is probably not realistic. Most investors on the “sell” side would accept a $10,000 option fee.
Private Mortgage Financing Partners, LLC
Website View Page
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Adam Summerer
Lender · Franklin, TN · Member since 2026 · 110 posts · 26 votes
2d
One thing to check from the buyer's side: when they go get a mortgage at the end, a conventional lender generally only counts the part of each payment that's above market rent as credit toward the down payment, and they'll want the lease plus proof of every payment. So if $1,500 is about market rent for that house, that 50% credit may not count the way your buyer expects. Worth having a lender look at the structure before you sign so the exit actually works.
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