REI ETUTOR Lease Options. Lease Option Contracts REI eTutor What is a Lease Option Contract? A...
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Transcript of REI ETUTOR Lease Options. Lease Option Contracts REI eTutor What is a Lease Option Contract? A...
REI ETUTOR
Lease Options
Lease Option Contracts
REI eTutor
What is a Lease Option Contract?
A contract to lease a property +
An option to purchase the property
Benefits
REI eTutor
How do I benefit?
Little to no cash out of pocket.
Obtain control of the property.
Immediate profit with monthly cash flow.
Low risk.
Benefits
REI eTutor
How does the homeowner benefit?Obtain higher sales price than cash offer.Positive cash flow.No commissions.No maintenance.No land lordingTax benefits until day of sale.
Legality
REI eTutor
Are lease options legal?
Yes!
Check with your local attorney to see if there are any specific laws you must abide by for a lease-option contract.
Success
REI eTutor
Will this really work in my area?
Yes!
Risks
REI eTutor
Potential RisksEquitable title claimProtecting your option
Ex: Seller backs out, dies, disappears, etc.Due-On-Sale Clause
Non-issue
Equitable Claim
REI eTutor
What is an equitable claim?Tenant argues lease/option agreement is
equivalent of an installment contract.Buyer “owns” property even though no
passing of title.Landlord is lender.
Equitable Claim
REI eTutor
Risks with an equitable claim argumentForeclosure process takes must longer than
an eviction.Result
Costly monthly payments Additional court costs
Change of court venue
Equitable Claim
REI eTutor
There is light at the end of the tunnel.Tenant rarely wins.
Why?Court must interpret lease/option for
something it is not.
Equitable Claim
REI eTutor
Protect YourselfHave a local attorney draft the lease-option
contract.Avoid lease option contracts of more than 3
yearsAvoid tenant improvements during the leaseAvoid creating large amounts of equity
between purchase price and market value.Avoid large down payments.
Protecting Your Option
REI eTutor
How do you protect your option?Record the option in the public records.Create an escrow where an attorney or title
company holds the deed.
Due-On-Sale Clause
REI eTutor
What is the due-on-sale clause?A provision in the mortgage that states the
mortgage must be paid in full upon the sale of the property or conveyance of interest.
Is this an issue?No! We have never seen a bank enforce the
due-on-sale clause.Why would the bank call a performing loan due?
This would only hurt themThe due-on-sale clause is a contractual right, not
a law.
Lease Option
REI eTutor
Option DepositLarge enough so tenant does not walk away.Large enough to cover damages in case
tenant does walk away.Average $5,000+/-Range $3,000 to $15,000 depending on the
neighborhood, market, and price of home.
Lease Option
REI eTutor
How to make moneySpread on your rent payment
Ex: Your payment is $900, tenant payment is $1,150 Monthly profit of $250
Option priceHow much profit?
Your choice!
Lease Option
REI eTutor
Monthly CreditTo give or not to give
Your decisionIf credit, charge above and beyond normal
tenant payment. If tenant payment is $1,150, anything above is a credit
towards purchase price.
Repairs
REI eTutor
Who is responsible for repairs?Major repairs
InvestorMinor Repairs
Tenant
Goal is to avoid tenant improvements
Attracting Sellers
REI eTutor
What type of sellers?Motivated but not anxiousLooking for higher sales priceLooking for tax benefits
Slightly upside down
Attracting Buyers
REI eTutor
What types of buyersAll walks of lifeUsually in process of reestablishing creditPreapprove to see if they can get mortgage in
2 years
Lease Option
REI eTutor
Where to find themCraigslistLocal ClassifiedsYards SignsCreation of a buyers list (See Module on
Buyers List)
Conclusion
REI eTutor
REMEMBEREvery Offer Does Not Result In A Deal But
Every Deal Is The Result Of An Offer