lease option as a way to fund rehab project?

I have an unconventional idea I’m thinking of trying. There is a house I’m interested in. I am planning on trying to get it for $140k. It needs minimum repairs of $15k (foundation and fixing cosmetics associated with that but no updating of anything else) and it will sell for $203k after that. If I spend $10k on modernizing it I can sell the house for $220k.

Here’s the problem. The local hard money lenders don’t lend on ARV’s over $150k. My friends and family don’t have that kind of cash to loan. I do have enough money for repairs and holding costs just not enough to actually buy the house. I can’t use a conventional loan because it has foundation problems.

So I am thinking of approaching the seller with the idea of a lease option. I would lease the property for max 6 months (although I’d do a year long lease) and execute the option to buy at $140k when I find a buyer after rehab. Lease option seems like a better way to go instead of doing a wrap around mortgage or seller financing because the seller is in pretty dire straights and still owes money on the house. It just seems like they would be more comfortable/familiar with the idea of leasing it for a short period of time until I buy it. It’s what lots of homeowners are doing anyways if they can’t get the price they want - they just lease it instead. The house is in a very nice neighborhood with average DOM of 60 days or less. It’s very hard to find good deals in this particular small city because demand is high for this area, especially at the lower end of the price range (low $200k’s)

Do you all think this is possible or even a good idea? Are there pitfalls I should be aware of? I am in Texas - would we fill out the standard lease form and then also sign a Purchase agreement showing I have the option to buy at $140k? Instead of doing a double closing should I put my name OR ASSIGNS on the purchase agreement so the seller and end buyer can just do their closing and escrow will send me my cut? Thanks for the help!


 The reason this is not done is simple "Ownership" as what is going to keep the real owner from keeping the property not honoring the option and force you to take him to court and sue him! The fact the current owner "is in pretty dire straights" and still owes money against this home and probable owes money to other creditors.

If this property owner got into legal trouble (Lawsuit, judgement, garnishment) the property could be pulled into a situation to pay the debt or under a bankruptcy filing your agreement could be “Clawed Back” prior to exercising the option.

I would advice you to do a “Wrap” it ensures you a recorded transaction and a Warranty Deed at close of escrow, cost probable less than $3k but ensure’s your legal ownership and you can set up a “Servicing Account” to pay the underlying mortgage payments and impound and pay taxes and insurance.

Do a 2 year wrap term to allow you plenty of contingency time in case of unforseen problems!!

Good Luck,


my neighbourhood DOM average is 21 days.

Don’t worry about closing right now, think ahead of the game will only give you headache. You haven’t even got the deal yet.

Yes. A Lease Option will let you get to rehabbing the property without purchasing it first. The Lease gives you full control to rehab the property, freeing up the funds to do a great rehab. The title goes into Escrow. The Seller CANNOT back out of the contract. Incentives you can offer the seller are- higher than usual rent rates (ex $1000/mo) Up to 20% down payment, tax benefits of still owning the home, and a guarantee that the house will be sold at the end of the option period.

It’s what I do and it works for me. :beer


If you sign a year lease today and your seller suddenly or without disclosing it has legal problems like creditor lawsuits seeking judgement or multiple judgements for unpaid credit cards, car payments or other debts once a judgement is recieved a lien can be placed against any owned property any day up to the closing of escrow to a new buyer!

Now if you lease option thinking I have an option to buy this property for 65 cents on the dollar and put say $20k into a remodel and then come to find during your lease liens have been filed against the property for a total of $50k dollars, your deal is shot and your only recourse is to take the seller to court which cost’s you money and time.

A lawsuit could end up in court for years while depositions, discovery, motions, etc. are filed and delay’s or extensions drive your case 12, 18, 24 months or longer into the future, then with appeals it could be 10 years before you get a final decision allowing a firm judgement but your still not guaranteed your money.

And if you lease / option a property and your property owner / seller suddenly has to declare bankruptcy and you have not exercised your option a federal bankruptcy judge can and will “Claw Back” your option and reverse the agreement if there is equity available in the property which could be distributed to the property owners creditors.

Be very careful what you do although I understand it only takes once to learn a valuable lesson and some of us need to learn the hard way.

Caviot Emptor!!!