OfflineI am posting this because this question comes up a lot and it will give clarity to those considering this as a real estate option. So....
Basics of an Option
* Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial or as little as $1.
* Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the option.
* The term of the option agreement is negotiable, but the common length is generally from one year to three years.
* Option money is rarely refundable.
* Nobody else can buy the property during the option period.
* The buyer can sell the option to somebody else.
* If the buyer does not exercise the option and purchase the property at the end of the option, the option expires.
* The buyer is not obligated to buy the property.
Basics of a Lease Option
* Buyer pays the seller option money for the right to later purchase the property. The lease option money may be substantial.
* Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the lease option.
* During the term of the lease option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
* The term of the lease option agreement is negotiable, but the common length is generally from one year to three years.
* The option money generally does not apply toward the down payment.
* A portion of the monthly rental payment typically applies toward the purchase price.
* Option money is rarely refundable.
* Nobody else can buy the property during the lease option period.
* The buyer generally cannot assign the lease option without seller approval.
* If the buyer does not exercise the lease option and purchase the property at the end of the lease option, the option expires.
* The buyer is not obligated to buy the property.
Basics of a Lease Purchase
* Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial.
* Buyer and seller agree on a purchase price, often at or a bit higher than market value.
* During the term of the option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
* The term of the lease purchase agreement is negotiable, but the common length is generally from one year to three years, at which time the buyer applies for bank financing and pays the seller in full.
* The option money generally does not apply toward the down payment.
* A portion of the monthly lease payment typically applies toward the purchase price.
* Option money is nonrefundable.
* Nobody else can buy the property unless the buyer defaults.
* The buyer typically cannot assign the lease purchase agreement without seller approval.
* Buyers are often responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.
* The buyer is obligated to buy the property.
Doing a Lease Option / Lease Purchase
Hire a real estate lawyer to draw the documents and explain your rights, including those of possession and default consequences. The property might be encumbered by underlying loans that contain alienation clauses, giving the lender the right to accelerate the loans upon sale.
Sometimes sellers give the option money to their real estate agent as full payment of commission. Agents are not always involved in the exercise of lease options or fulfillment of lease purchase agreements and, even if you have retained real estate agent representation, you still need a real estate lawyer. Agents are not lawyers and cannot give legal advice.
In the event of a lease purchase, obtain all the disclosures and do your due diligence just like you would on a regular sale. This means:
* Get a home inspection.
* Examine the title policy.
* Obtain an appraisal.
* Read seller disclosures.
* Consider obtaining pest inspections, a roof certification, home warranty plan and hiring other qualified inspectors.
Lease Purchase Benefits for Sellers and Buyers
Lease purchase agreements are commonly offered by sellers of hard-to-sell properties. Think about it, if the property was easy to sell, the seller would sell it to a conventional buyer who would pay the seller cash.
* Sellers generally get market value at today's prices and relief from paying a mortgage on a vacant property.
* Although the lease payments may exceed market rent, the buyer is building a down payment and banking that the property will appreciate beyond the agreed upon purchase price.
* Buyers generally make a small down payment, with little or no qualifying, making a lease purchase an attractive way to ease into the benefits of home ownership.
* Buyers also receive a forced savings plan since part of the lease payment is credited toward the purchase price at the end of the lease option agreement.
* If the buyer defaults, sellers do not refund any portion of the lease payments nor the option money and may retain the right to sue for specific performance.
So in conclusion - they are similar but they ARE NOT the same thing. Please check you local realty laws on the state specifics on these for your area.
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
That's one I'll be reading over and over 'til it sinks in. Thanks.
Rina
"Obstacles can slow you down, but they can only stop you with your permission." Dean Graziosi (BARM pg 101)
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That was some good writing. Great job Anita!
Mike this is what the difference is. There are some, even on here that will say that there is none, but THERE definitely is. Also remember to safeguard yourself but making it clear in the lease portion that NO EQUITY is being earned, built or implied as to interest in the property.
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
I was in talks with an agent in NJ and was looking to make an offer to lease option a condo when she called me back and said the head realtor at her work told her that you cannot do a sandwich lease option and/or an assignment in the state of New Jersey. Does anyone know if this is true? Can states limit your ability to assign your contract/option to purchase to someone else? How would I go about finding out if this is true? Part of me want to say that this is just some old crusty agent that is just being negative, but a part of me is saying "hey this is Jersey and it could be true". Any help would be great. Thanks.
Matt
as long as the lease option states "RIGHT TO SUBLET" then you absolutley can do a "sandwich option", and the way to find out if indeed it's true is; like i said, if the lease option gives you the right to sublet, then your fine
YOUR HERO, SULLY
I agree, however she made it seem like her boss had more of an issue with the assignment portion of the contract. Almost like assigning contracts in NJ is completely illegal if you don't actually purchase the home which I also thought was shady. How would you differentiate that? If I have a contract stating I have the option to purchase and I have one that I purchased straight up with the ability to assign, it is the same thing. I am turning over my right to buy to someone else before I actually fund the purchase. Have you or anyone else ever heard of Assignment contracts being illegal? I think there is a big difference between illegal and "not used here" which is what I think my realtors boss is trying to say. It might be time to consult an attorney.
Matt
they don't understand what your trying to do, assignment contracts are NOT illegal, like i said, just because they don't understand thier quick to say, "oh, thats illegal", yeah, ok bud....
YOUR HERO, SULLY
I have an appointment this week with a couple who's only alternative would be a short sale. Quick background: They are in the house 2 yrs & have paid 1 yr due to an unforeseen tragedy. Receive a Loan Modification in July which increased their payments. If I'm learning all of this right, it probably should have been a forbearance so it could have possibly lowered their current payments & put the overdue on the back end of the loan (Pleaser correct me if I'm wrong, I'm still trying to get it all).
This couple wants to stay in their home which by the way is kept beautifully. Somewhere along the posits and I can't seem to find it, I read about a Lease Option Buy Back. Please explain how this would work and how it would fit here (I'll take everything you have to offer to help this couple).
God Bless,
Darlene
Love, Light & Blessings,
Darlene
Get them to transfer title to you, you catch up on the back due and then lease-option it back to them.
If you cant do this then maybe they need to try and negotiate with the banks themselves
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
a good person, i couldn't have said it better myself, in their situation thats exactly what i would do, "cure the default", then lease option it back to them.
YOUR HERO, SULLY
Thanks Anita,
That would work great if I had such funds. This would mean to pay an enrie years of back mortgage payments owed. I guess this would be a way to get into the house very inexpensively. Unfortunately,I do not as a single mom just starting out in REI I don't have the funds to do that. If there is some method to accomplish this please let me in on it.
But then again, on the other hand, if they transfer the title the loan payments will be the same plus whatever additional I tack on for the lease payment. If they are can't make the current payments, they are definitely not going to be able to make this payment.
Love, Light & Blessings,
Darlene
Tell them to contact the bank regarding a short sale and then market their house to investors for purchase with the understanding that the previous owners would like to continue living there and pay rent
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
...
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
Thanks so much for the information. Continued success..........Lubertha
"GOD IS STILL IN CHARGE, HE IS THE AIR WE BREATHE"
Thanks again! WOw a lot of info
I have to read it more then once lol
~ Grace (If Donald Trump can do it YOU BETTER BELIEVE I CAN!!) btw I drew my display pic
I am wondering at the assumption of this kind of deal will the buyer have the title under his name or will it still be under the sellers name?
Cheerss!!!
Ok Sully, Destiny, and Anitarny, I am interested in I believe Lease Option opposed to lease purchase. Ill tell you want I would like to try and hopefully you guys can tell me if my idea will work and if not then why and what details I need to know to get this first deal done.
Id like to lease option a duplex, triplex, or quadriplex and I am assuming the monthly lease payment will be more then the rent of one apartment but less then the mortgage payment for the whole property. So I could rent the other 1, 2, or 3, apartment out to other tenants while I live in the other one, and use the rent money I receive to pay the monthly lease option, renters insurance, and other possible fees(whatever they may be). Do that for 1 to 3 years(the length of the lease option) while using the remainder of the rent payment I receive to fix up all the units, and then assign or somehow sell the property to an invester or someone who likes to buy rentals for a close to market value as the entire property would be in great condition at the time I sell it and would already have paying tenets in place.
Do I seem like I have it right or am I missing something, how would this strategy work out and what details did I forget? Whats the best way to search for a motivated multiplex sellers? What exact paper work with what clauses do I need to make it work and protect myself?
any help would be appreciated,
Respectfully,
Will
Establish positive forward thinking and ignore the naysayers.
Green Tree Investments OR LLC
Investing in a GREENER tomorrow
http://greentreeinvestmentsor.usapropertywholesale.com/
Is that a way of telling me that lease/options are not a good idea right now?
Hi
Sorry for the delay, I just saw the post.
You have the basics of it down correctly, but you may have a hard time fiding a multi-fam that will do a lease option. But never say never because anything is posssible. I dont know what more I can tell you, except read upon lease options more indepth. also check out this website. Its a woman named Wendy Patton and she is a lease option expert http://www.wendypatton.com .
Id like to lease option a duplex, triplex, or quadriplex and I am assuming the monthly lease payment will be more then the rent of one apartment but less then the mortgage payment for the whole property. So I could rent the other 1, 2, or 3, apartment out to other tenants while I live in the other one, and use the rent money I receive to pay the monthly lease option, renters insurance, and other possible fees(whatever they may be). Do that for 1 to 3 years(the length of the lease option) while using the remainder of the rent payment I receive to fix up all the units, and then assign or somehow sell the property to an invester or someone who likes to buy rentals for a close to market value as the entire property would be in great condition at the time I sell it and would already have paying tenets in place.
Do I seem like I have it right or am I missing something, how would this strategy work out and what details did I forget? Whats the best way to search for a motivated multiplex sellers? What exact paper work with what clauses do I need to make it work and protect myself?
any help would be appreciated,
Respectfully,
Will
Establish positive forward thinking and ignore the naysayers.
Green Tree Investments OR LLC
Investing in a GREENER tomorrow
http://greentreeinvestmentsor.usapropertywholesale.com/
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
This is what I state to people who think that this is a little shady:
For Assignments:
I lock up the property under contract. This contract gives me THE RIGHT to buy the property NOT THE OBLIGATION. If I choose to exercise this right, then I will buy the property myself. If I choose not to exercise this right, I have buyers that WILL BUY MY RIGHT to purchase the property and then take over my position. You have equitable interest in the property itself, as well as the right to buy the property. Once the property is locked up under contract, the seller can not sell or accept any other offers on the property until your contract has lapsed at which time it will become null and void. You have both agreed upon the purchase price of the home, as well as you have told the seller what you're doing.
Destrie
Destrie
Failure Is Not An Option
Destrie for simple way of explaining to the seller so that it ease their nerves.
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
Looking for advise on rent to own contracts. We are offering our duplex for sale with a rent to own option. We want to make sure the contract is written properly so as not to trigger the "sale" clause in our mortgage. All advise would be greatly appreciated.