HELP.... I WANT TO SELL ON LEASE OPTION

Hello everyone,

I bout a house on cash 35k I have put 8k worth of repairs which is all that was needed bringing my investment p to 43k without the worry of a mortgage. I recently got a call from a possible buyer that would like to purchase on a lease option. I would like to sell her the property for 53k leaving me with a possible 10k to walk away with. However I am clueless on how to structure a L/O deal please help me.

1.Is there typically a down payment?
2.How much of the agreed monthly payment goes towards the actual purchase price of the property?
3.Can I remain hands off with repairs in this type of agreement?
4.What other issues should I be concerned with?

Hi Jay$,

The lease option is really two agreements – a rental agreement and the option agreement. Here’s how it works (the short & sweet version).

  1. You’ll need to agree on a sales price, which you seem to have done.
  2. You’ll need to decide how long she has to purchase. One year option? Two or three? I’d recommend giving her two to three years to complete the purchase.
  3. You’ll need to agree on an option fee (down payment if you will). If your buyer doesn’t complete the option before the contract term expires, she loses her option fee. If she completes the purchase, her full option fee will apply towards the purchase price with rent credits (see below).
  4. You can offer her rent credits (which will be credited towards the purchase price at closing. You can choose any amount you like, but it’s nice to give her enough that she sees a tangible benefit in completing the transaction. (Maybe 25-50% of the lease amount. It’s your choice.)
  5. Typically you’ll set repairs so that your tenant is responsible for minor repairs (up to about $500) and you’ll cover anything above that.

Things to be aware of: If her credit is bad, she may not be able to get financing by the end of the option term. How will you handle this? Take it back? Give her the right to extend for a year or two longer in exchange for an additional option fee?

It’s a good way to move a property, but try to allow for the unknowns.

Good luck!

Peter Vekselman

Jay$,

I almost forgot…

Her down payment should be large enough to make you comfortable. You might only want $2K-3K down, you may decide you want as much as 5K. It’s really a personal decision and what she can afford.

If you’re willing to sell this way you WANT her to succeed, so ideally her credit just has a few minor glitches that need to be worked out. If she can’t get financing are you willing to carry until she pays off?

You’ll really need to work these details out in your mind. It’s still a good way to sell – and get a good price. You can also justify premium rental rates because you’ll be giving her rent credits.

Good luck on this!

Peter Vekselman

Thanks Pete this has helped me tremendously… I will take note of these great ideas and give here a call today.

Thanks

Agreed. Peter’s right. :smile