Real estate investing involves a lot of paperwork, especially if you want to keep yourself out of trouble and make sure you’re thoroughly protected in every deal you do. For instance, in every lease option deal I do, I end up using 10 different documents and I’m going to briefly cover all of those documents today. (These are the documents I use between me and the landlord/seller I am doing the deal with.)
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The 10 Documents You Need for Your Lease Option Deals
- Residential lease with option to purchase – This is a combination of a lease and an option agreement. It basically states that I will be paying $1,000 a month to rent 1234 Main St. and that I have the option to purchase the house anytime within the next 5 years. (Always try and get 5 years on your lease options.)
- Authorization to release – This is a critical document that allows me to verify a landlord’s mortgage information. I need to make sure that the seller’s payment is actually $1,000 a month and that the mortgage balance is truly $300,000. (There have been times when a seller told me they owed $200,000 on a house and when I verified the balance it was closer to $250,000.)
- Due on sale disclosure – This is a CYA form that states the landlord knows that doing a lease option with me could trigger the due on sale clause in his mortgage.
- Lead based paint disclosure – I used to do a ton of deals in Baltimore City where there are a lot of lead problems. If you’re dealing with an older house make sure and get this pamphlet. (This is for the owner’s benefit to help them out, but you will also be using one with the tenants.)
- Notice of option agreement – This is a document that states I have a 5 year option to buy the house at $300,000. I take this document to my local courthouse and have it recorded in the land records so that I can “cloud” the title.
- Lease option consultation agreement – This document I sort of “invented.” It’s another CYA form that I make the seller fill out. It basically says that “John Doe seller realizes that Narrows Realty Group is going to sell 1234 main street for a profit. And that Narrows has agreed to pay $300,000 to John Doe seller and they get to keep all money they make over the $300,000 amount.”
- Power of attorney – I make landlords sign a limited power of attorney so that I can have their loan paid off (when my tenant/buyer exercises their option) and take care of the loan in general in case the landlord disappears from the face of the earth.
- Lender Notification – This is a document that states my company is now taking care of 1234 Main Street and all correspondence and mortgage documents should be sent to my address.
- Affidavit of Liens – The seller must sign this (and get it notarized) stating he does not have any liens against the property.
- Property disclosure/disclaimer – Every state has their own disclaimer/disclosure form so I give this to the seller so he can list all the defects of the property.
Those are all of the forms I use, and if you know your “scripts” you won’t have any problem getting a landlord to sign all of them. (If he won’t sign them he’s not motivated enough.) By the way, next week I’ll cover all of the documents you need when you find a tenant/buyer for your lease option deal.