Hey wallacehobbs,
I just have a quick question for you, may or may not help you out. "Do you have Mortgage Brokers in your network?" It would be ideal to help the buyer obtain a mortgage to purchase the property. quicker money in your hand, expecially if it was with in 12-18 months.
Anywho, hope all is going well… take care and happy investing!!!
Money x 3,
Thanks for your comments.
Yes, after going through a lot of mortgage brokers I have 3 I do business with in different parts of the country.
I refer everyone who is serious to one of these great folks, because I know they will do the right thing over money every time.
I like the way they think.
Have an Awesome Weekend!
Real Estate Investing is Wonderfull!
Can someone please elaborate in detail so we can better understand the option fee… Thx
You’ll have to elaborate a little more on your question, first.
What exactly do you not understand about the option fee?
Roger
As an aside: I’ve heard that when selling on a L/O, it is crucial to get both an option fee AND a security deposit from the T/B. If you only get an option fee, the T/B can then successfully win the option fee in a lawsuit. I recall reading this exact thing happening last year. The judge ordered that since there was no security deposit, the option fee could be conscrued to be a form of security deposit.
Regards,
Steve
What I typically do in a L/O before I let a T/B move in is get the following:
Option Fee = At least 3% "Non Refundable and Towards thier down payment if they take the option.
First Months Rent
Last Months Rent = “Refundable if they forfit option” This also could be added into the final contract if they take the option!!!
Talk to your attorney before you do this. I have heard in cases of that the option fee COULD be the security deposit as well. Make it clear in the contract if you do not attend to get a security deposit. Remember, you are doing 2 seperate items here; A Lease Agreement and an Option Agreement. So the Option money would be on this form and the Security Deposit would go on the Lease Agreement.
Always protect your self. You never know who’s out there to get ya!!!
Specially in Tenant/Landlord situations!!
Enjoy and good luck!
MONEY!!!
Good advice, thanks 
Will recording cause a DOS clause to occur?
This is a good question. But what I do on all my Sandwitches is make sure the owner informs their mortgage company that the property is going to be a rental. That will protect the owner from the DOS clause!!!
MONEY!!!
I think Mr. Hobbs explanation of the L/O was pretty good.
I’m far from being a 30 year seasoned Real Estate Investor, but have done many more deals than your average Joe, and have made a fair share of mistakes - some really stupid ones. I’ve made alot of money working for someone, but Iv’e kept all ther money I made in Real Estate, which is why I decided to quit my job at 44 and do this full time.
I typically do as Mr. Locke suggests and get the Deed for all my properties I aquire if I can- It just eliminates some of the risk. I have however purchased a couple on Lease Options with motivated sellers but not distressed sellers. This does not eliminate the risk it may reduce it tho. But who’s to say Mr. Seller (who is doing well now) won’t get hit with an IRS lien from 6 years ago.
What I’ve seen from the L/O gurus’s is that you can add 10-15% to the Purchase Price as well as any appreciation the area may be experiencing. Get your T/B Financed and make alot of money. I actually tried this on my first selling deal - no problem T/B signed away and wanted the condo. What I didn’t count on was that the Lender would not loan on an over-valued property. Therefor, the Purchase Price dropped right down to the appraisal value before they would lend.
Now I structure my L/O deals to my T/B typically at or just a thousand or two above the appraisal value today. Yes I probably lose some money i could have gotten, but I know the Lender isn’t going to have a problem lending either. I’ve done my last 3 L/O’s like this and all took the option and had no problem with financing. I also don’t take a large option fee upfront, but I do take one, and I typically don’t credit more than $100 a month if any to the purchase price. I don’t have to. My Contracts are tough though,but typically not enforced - I want them to get the house. My profits - small amount up front, good cash flow (as i typically pay cash for them), and a good back end (not cause it has been inflated - but because I purchased it right).
I typically pay cash for my properties when I can, and I don’t like more than 1 or 2 properties aquired by sub to’s or Lease Options hanging out there for long and have reserves set aside just in case. I just sleep better, when there’s that much less to worry about with that type of investment acquisition strategy. But that just me and my comfort zone.
I dunno - Maybe I’m just Too Stupid or Too Conservative
but I have made money and have no problems
I am beginning to look more closely at expanding my comfort zone and aquire more properties than the 1 or 2 I do a year under these methods as they do work if done correctly.
KEC
I also use seperate Lease and Option agreements.
Why?
I don’t know why - Thats how my Lawyer said it was to be done - so thats how I do it. I Originally provided him 1 combo agreement and he split it into 2. I am not a lawyer so did not question it, as he is supposed to know best. If its good enough for him - I figure it’s good enough for me.
I do however go over each agreement line by line w/my tenant buyer in front of my lawyer. Anything the T/B does not understand is explained by my lawyer to them - be it good, bad, or ugly. I disclose the #%#%# out of everything I can to eliminate future problems - and I tell them upfront that I am making money from this deal because this is what I do.
Again, Maybe I’m just Stupid…lol…but it works for me.
KEC
Kevin,
I think you are very smart.
I use OPB too.
Heck thats my lawyers job to do paperwork.
It give me more Free time and more time to Do Deals. ;D
Thanks
Just wondering with the market cooling off, how is everyone accross the country doing now with Lease Options? ???
I hope this post get read,
I am a fairly new to investing, new meaning I havent actual completed a money making deal…
But with that said, I am in the position to aquire two properties with a lease option. My concern is that one of the properties is over financed and the seller will not be able to afford the mortgage for long. I offered a solution
in which we reduced his mortgage meaning - I take control of his home, I pay a portion of his mortgage and his pay portion, reason being that his current monthly payments would be too high for a renter or tenant buyer to cover, let alone making any cash flow…
also in our agreement a portion of what I am making from the tenant I put in the property will go directly to principal of his current loan. In hopes that this reduces the loan over a period of time where I could realistic have someone in position to purchase the property.
80% of me say walk away, but this young guy needs my help and if I work hard and do what I say I can do, I could be make a little cash flow.
These are the numbers, this home is fairly brand new,
built in 2002. 3bed, 2full bath. Its not a great location , The house and other houses were built by a non profit org. - right accross the street from low income aparments.
Its appraise value is around 86K … The seller bought the home for 90k. He then got disperate again and refied in March of this year and his new mortgage is 104k. monthly payments 885.00 a month.
With these numbers the house can not be realistically sold until the mortgage balance comes close to 87k or 90k
and thats at least 2-3 years away with large payments on a monthly basis going to principle.
He ask me can sell the house for 88k or 90k and make payments himself on the difference. I told I didnt think so without him getting a personal loan, and or refinancing his truck to pay the original loan at closing.
I Know I wrote alot, but could one of the experts on this board give some type of advice. I meet back up with the seller sometime this week.
The house is in great condition, the seller is single and never used 2 of the rooms, and the kitchen looks like it never been used. I really dont want to just put anyone is the house to get the deal done, I want to make sure the house is well taken care of.
I am new to this forum and have found the post on lease options helpfull. I am new to investing and am doing my research. I would like to know if the lease option method of investing is legal in all states? Are there any restrictions that I should know about?
Welcome, I am not sure about all states, the ones I do them in it is.
Texas is making it harder I understand.
Are there any Texans in here with more input on this?
What state are you in?
Happy Investing! 
Are you suggesting that because the property is in a Land Trust and the seller is the benificiary of the Land Trust that this would be hidden from a lein or encumbrance against the seller, thereby not attaching his or her property?
John Locke said:
"Beneficiary LAW somebody who is entitled by a will, trust or insurance policy to receive money or property. What this means is the seller albeit he or she is the beneficiary would still have to claim the property as an “asset”, which then makes it attachable.
Land Trusts are not the catch all to hide assets, any attorney in a deposition can find what a person owns or is the beneficiary of, I would not recommend comitting perjury or fraud and not disclosing what you own when asked in a court authorized deposition or an IRS audit."
John $Cash$ Locke
===========================================
Wrong, John. A land trust IS an asset, but it is PERSONAL PROPERTY, not realty. Title is held by the trustee who in my case is a non-profit corporation. When the seller puts the property in trust and remains on the loans and appoints a Resident Beneficiary (tenant), they BOTH own part of the same property. By law, personal property owned by two or more unrelated persons cannot be partitioned. If a seller is the ONLY beneficiary, then he could be found. So, yes I am telling you that the “seller” (Settlor) in a land trust is both hidden and protected from liens, judgments, etc.
When filling out applications, the asset is listed under securities, not real estate, as you own a trust, not real property. As to perjury or fraud, there is none involved with a land trust.
I have bought and sold many properties using lease options since 1979. However, a land trust has many advantages over a lease option.
Example: The buyer (lessee) can legally write off the mortgage interest and property taxes in a trust transaction, and shares future appreciation in all my transactions. Can you say that for the buyer is a lease option?
My transactions are three years and at the end, the Buyer is able to REFINANCE the property. An optionee in a lease option cannot.
The Buyer is my transactions has all the benefits of home ownership the day he/she moves in. Not in a lease option.
In a lease option if the buyer is in default, you may well have to foreclose rather than evict if he is successful in claiming an equitable interest in the property. With a trust it’s a simple eviction – period. Reason: a land trust is personal property and the buyer’s interest is in the trust, not the property.
Unless you pay a collection service, you must collect the rent payments and handle all property management yourself in an option transaction. My trustee does it for me. He collects the rent, pays the mortgage payments and sends me a check each month for my positive cash flow.
Maintenance and repairs? In a lease option you HOPE your tenant takes good care of the property and are still responsible for the costs. In a trust transaction, it is the Tenant’s responsibility for maintenance and repairs, not yours, and my experience has been they take great pride in doing so.
I could go on and on, but the point is that I am not dissing lease options. They are legal (although they do violate the DOSC) and Texas is doing all it can to discourage them. They are a means of achieving a goal. In my opinion, they are just not the best or safest way to do it.
The trust is safer and more efficient and brings better financial results. I didn’t intend to scare anyone, just inform them that there are much better and safer ways to sell or buy a property.
Wow, talk about a sales pitch!
Let’s go over what Mr. Mialocq, excuse me, Dr. Mialocq has to say about the grand benefits of using a NARS PACTRUST land trust, which btw, he is selling.
As to perjury or fraud, there is none involved with a land trust.
Well, that really depends. As many people promoting land trusts say, they have the seller deed the property into a land trust BEFORE they buy the property. The speech goes, the land trust is being set up for ‘asset protection.’ However, the true purpose of the land trust is to try to conceal the sale of the property from the lender, thus avoiding the DOS issue. Many states (especially good ol’ NC here) are now closely investigating WHY the land trust was set up. Setting one up to conceal a sale IS fraud, plain and simple.
The buyer (lessee) can legally write off the mortgage interest and property taxes in a trust transaction, and shares future appreciation in all my transactions. Can you say that for the buyer is a lease option?
Well, yes and no, and it depends. L/O’s and trusts are both varied instruments, so IMO, your statement is a blanket statement that may or may not be true for either. For example, in my L/O’s, the tenant is responsible for the taxes and he who pays the taxes, gets the benefits. I don’t have interest calculated in my leases, but some do, and the tenant gets the benefit of such.
The Buyer is my transactions has all the benefits of home ownership the day he/she moves in. Not in a lease option.
Again, depends on the landlord in either transaction (as well as what you mean by benefits). Mine pretty much are free to do what they want to a property (painting, upgrading, etc) so long as they make their payments. Kind of like a bank, wouldn’t you agree? However, they don’t have ALL the benefits of home ownership, that’s true. I have a limit on the total $$$ amount that they have to invest in repairs should something major happen. So if the roof blows off, the heat pump gives out and well dries up, they are protected. If I were the bank, all I’d care about was my monthly payment.
My transactions are three years and at the end, the Buyer is able to REFINANCE the property. An optionee in a lease option cannot.
Not true. In fact, the majority of mine tenants that qualify for a financing are treated as a refinance by the lenders.
In a lease option if the buyer is in default, you may well have to foreclose rather than evict if he is successful in claiming an equitable interest in the property. With a trust it’s a simple eviction – period. Reason: a land trust is personal property and the buyer’s interest is in the trust, not the property.
Again, depends at best. I have never had to foreclose on a leased property, whether or not it has an option on it. In NC, it’s a simple eviction, period. I do have to say, however, I think that you saying that land trusts provide ALL the benefits of homeownerhip, all the tax benefits, all the risks, yet when they miss a payment, they can simply be evicted, and the court wouldn’t question that, is quite laughable. But again, that’s just my opinion.
Unless you pay a collection service, you must collect the rent payments and handle all property management yourself in an option transaction. My trustee does it for me. He collects the rent, pays the mortgage payments and sends me a check each month for my positive cash flow.
No I don’t. These days, there are these people called property managers. They handle property management (hence the name).
Maintenance and repairs? In a lease option you HOPE your tenant takes good care of the property and are still responsible for the costs. In a trust transaction, it is the Tenant’s responsibility for maintenance and repairs, not yours, and my experience has been they take great pride in doing so.
In a trust transaction, you HOPE that your tenant takes good care of property too. If you get the property back, YOU’RE still responsible for the costs in either transaction. In most l/o’s the tenant is responsible for most/all of the maintnenace/repairs as well, and in my experience, they too take great pride in doing so. Latest example, went to visit one of my tenants and half way to the door, I realized that I was walking on a brand new concrete walkway.
I could go on and on, but the point is that I am not dissing lease options. They are legal (although they do violate the DOSC) and Texas is doing all it can to discourage them. They are a means of achieving a goal. In my opinion, they are just not the best or safest way to do it.
I too could go on and on, but I’m already late for a closing. My point is, your reasonings behind promoting land trusts are flawed. Land trusts are legal and they too violate the DOS. All investing has risks, including trusts.
And I’m not selling anything.
Raj
Gary,
Glad to meet you.
First I do not do lease option investing, so we can get that out of the way.
Somehow after reading your post I just knew it sounded like an old friend of mines investing method, which he would defend to the end of time.
You are talking about and entirely different trust than most folks use for investing methods and in all fairness should have explained that you were referring Bill Gatten’s PAC trust. I am not aquainted enough with this type of trust to even comment on it nor would I in all due respect for Bill.
Public records will show over 500 subject to deals I have done, none in a trust, never a DOS envoked and without major problems of any kind. It would be hard on anyones part to argue against whether a trust is required or not and what protection it really offers.
Can’t blame anyone with all the anti creative investing talk going on in certain states to make hay while the sun shines promoting their method of investing when they believe it does not violate any state statutes (Texas) currently in place or about to come into effect.
John $Cash$ Locke
Good Afternoon to all,
Is not Real Estate Investing Awesome! ;D
Just wondering…what states are any of you having problem doing lease option today ?
Are they many people still out there using this type of investment option?
Looking forward to your feedback!