Somebody told me that is ilegal to do a lease-option in Texas if the property got a lien (Junior lien or other mortgage). also he told me In order for me to do a lease option the property needs to be paid in full. However, other person told me that there is a way to do it through a Land Tusrt. At this point I’m very confused I would like to have some advice. I’d really appreciate all replys. Thank you
Lease options are illegal if you have a lien on the property. Just place your property into a land trust. Then make sure that your lease is no longer than 3 years and does not contain an option to buy. Those are DOSC violations.
There are several ways to do this, one in which you make your tenant a beneficiary of the trust (this is the method I use). Good luck with it.
so, what I have to do is put the property on a Land Trust, lease the property and make another contract for the option to buy the Land Trust? Is it right. Thank you for your help
No. I lease the property to my tenant and make him a co-beneficiary of the trust (50%). I triple net lease to my new co-owner making him fully responsible for maintenance and repairs. As such he is considered an owner by the IRS and can take the mtg interest and prop tax writeoffs. He pays the lease payment to my Trustee’s payment processing company.
There is no separate option agreement necessary. Trust docs allow the co-beneficiary the right to refinance and buy me out anytime during the lease period. He has first right of refusal to buy me out at FMV. No obligation to do so.
I make my monthly profit without being responsible for maintenance, repairs, collections, etc.
What happen if he never execersices the option to buy during the three years being a co-owner 50% beneficiary of the land trust?Thank you for your help.
The trust documents provide that the property will be put up for sale at the end of the lease term at Fair Market Value. The RB has the first right of refusal to buy it at that price. The distribution is as follows:
The property is either sold by the trustee at FMV, or purchased and refinanced by co-beneficiary at FMV.
All loans are retired (out of the proceeds of the sale or refi).
Costs of disposition are paid (e.g., escrow, re commissions, etc.).
The settlor beneficiary then is refunded its beneficiary contribution (beginning equity and non-recurring startup costs).
The co-beneficiaries are refunded their beneficiary contributions (non-recurring startup costs, equity contributions, escrow fees, any part of commissions paid at inception, etc.)
ALL remaining (net) proceeds are distributed among beneficiaries in proportion to their respective percentage of interest held.
Thank you for all this information. It’s very useful. However; If I have another question I’m going to bother you again. Thank you!