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The 10 Documents You Must Use When Doing a Lease Option

Jason Hanson
3 min read

I’m still training for my marathon and I still want to shoot myself as I jog through the summer heat in my Bill Clinton shorts (maybe I’d be having more fun if I had an intern?). Anyway, I’m in this marathon mess because of a promise I made to a friend. So, I was thinking, what if this friend had an “unfortunate” accident and couldn’t run. Well, then I guess I wouldn’t have to continue running either. If anyone out there wants to pull a Tanya Harding on my friend just let me know. Applicants must have a strong swing and no ice skating experience is required.

Okay, so last week I said I would go over the beginning of lease options. First, you have to find the deal. Here are the top three ways to find lease option deals (all targeting tired landlords).

  1. Direct mail – Buy a mailing list from melissadata.com or another company and send out at least 1,000 letters a month to absentee owners.
  2. Drive for dollars – Drive the zip codes that you invest in and call every “for rent” sign that you see. Also, write down the addresses of all vacant houses.
  3. Craigslist.com – Go to the “for rent” section on craigslist. Scan the listings to find ones that meet your buying criteria. Once you find a property, send the landlord a very detailed email about how you want to guarantee his rent and maintenance and all you ask is that you can purchase the property down the line. Every single day you should get on craigslist and email at least 10 landlords. Doing this every day should get you at least one deal a month.

    Alright, so let’s pretend you are one of the 5% of people who are going to actually listen to me. You have done your marketing and found a lease option deal. Here is the important and detailed paperwork you will need to get signed by the seller:

    1. Residential lease with option to purchase – This is a combo lease and option agreement, that states the monthly rent you will pay the seller, the length of the lease and the purchase price of the property.
    2. Authorization to release – This form allows you to check the mortgage balance and monthly payments on the loan (if the sellers say they own $200,000 on the property, you need to make sure they are telling the truth).
    3. Due on sale disclosure – You need to let the sellers know that if they give you a five year lease with option to buy, that it can trigger the clause (before you freak out, this never happens…but you always give people 100% full disclosure).
    4. Lead based paint disclosure – If the house was built before 1978, go to www.hud.gov to get the form.
    5. Notice of option agreement – This is a very important form that needs to be recorded at your local courthouse. This clouds the title and lets the world know that you have the option to buy the house.
    6. Lease option consultation agreement – Another important form. This is one of my many agreements that cost me more than $1,200 for my lawyer to create. This makes sure that the seller can’t squeeze you out as the middle man and that you get the difference between your purchase price with the seller and sales price to the tenant/buyer. This will be notarized.
    7. Power of attorney – Needed so you can take care of the loan, make the payments…basically do anything you need to the account (since you are the one paying the mortgage. Always pay the mortgage directly to the company with a lease option. Never let the seller do it).
    8. Lender notification – Notifies the lender to send all coupons and loan information to your mailing address.
    9. Affidavit of liens – Must be notarized and the seller states that there are no liens against the property, such as mechanics liens.
    10. Property disclosure/disclaimer – All states have different disclosures that need to be filled out. You can get a copy from a local investor or Realtor (yes, there are a few things Realtors are good for).

    I tell you, I hope folks learn this method. I get properties all of the time with no money down (my only expense is marketing) and of course never use any credit. Also, the tenants are great and never cause problems. Last Friday, I had a tenant call me because they had problems with the HVAC. I kindly reminded them that they are responsible for the first $300 in repairs and that they needed to call the home warranty company (always make your lease option tenants get a home warranty).

    Next week, I am going to go over the detailed checklist of what needs to be done after the paperwork is signed (such as the ohhh so important task of recording the option at the courthouse). So happy trails folks, I’m on a semi-vacation this week because life is good when you’re a real estate investor…because you control your own destiny and you control your time (unless you’re married, then I guess the misses does that).

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.