Lease Option Question

I bought a house about a year and half ago for $45,000, $40,000 in repairs so $85,000 total invested. I first listed it for 114,000, after no interest I kept lowering the price as of today it’s listed for 89,900. I dont want to lose money on the deal and I dont necessarily need the money but it has been a year and a half. The house is in great shape, obviously, after $40,000 in repairs. It’s a ranch style home 2000 sq feet, 3 bedrooms, 2 bath, 2 car garage and almost new everything. I dont know why it wont sell but my guess is for that price level no one can get a loan. I was approached about a possible lease option, I know a little bit about it but not enough to go forward right now. I have been reading these forums for the past 4 years and they have been very informative, I thought I would give it a try and see if I can get any guidance. The guy is offering to buy from me on a lease option contract, he said he could come up with some cash down and monthly payments. So, I guess my question is how to go about this lease option situation. If I dont need the money now should I just continue to hold or is it possible to make some money doing the lease option. The house is paid for in full, I make no payments. Let me know if there is anything i’m leaving out. Thanks for your time and help. Sorry if this is a confusing post.

I would sell on a Land Contract, especially if this was my house.

I don’t want an ‘optionee’ in my house. I want an owner.

Take what you can get on the down, and finance the rest.

Make it easy. Set a higher price, in return for the premium you’re offering for seller financing.

I would say to this current prospect, I’m willing to accept your small option payment, but I want a price of $125,000 payable in full in seven years, or earlier. Of course the smart thing for the buyer to do is wait the full seven years, unless the payment he’s making is more than what a bank would charge.

Meantime, it’s still much easier for your buyer to refinance the house in the future than it is to get purchase money mortgage (which would be the only alternative in the event he only had a lease with an option to buy).

If you really want to make some money…seller finance the house to a credit-challenged buyer.


$9,999 Down. No Qualifying!
No Credit Check! Owner Financing!
$890/mo Payment! Move In Today!
3 bed, 2 bath, 2 car

Take what you can get on the down and create a 2nd for the balance over six months (or whatever). The buyer you want doesn’t care what the price is, just the down, and the payment.

You might have to finance this house for several years, or until the buyer gets his credit fixed. You also want a buyer with a temporary credit hiccup, not a chronic dead beat. Dead beats, as a rule, don’t give you big downs. The buyers that will give you the larger down, are also more serious and less likely to screw you.

If this house is as nice as you say, it should be a magnet for those who really want to own a house, but have been turned down for financing, and will appreciate your offer.

BTW, with a Land Contract, you hold the deed until the buyer performs. The great selling proposition (besides easy qualifying) is that the buyer gets all the tax benefits of ownership, including depreciation and mortgage interest deductions. However, it probably goes without saying, you also are not responsible for any of the repairs, replacements/taxes/insurance, etc.


Also to attract a buyer tell them they will be recorded on the deed as the buyer and you as the lien holder.

Why would you offer to transfer the deed, and reduce your position to that of a lien holder, to someone that needs owner financing and has iffy credit? I don’t understand. Why would that effectively attract better buyers? To me that would attract the worser buyers.

This completely negates the purpose of the Land Contract.

Otherwise, why not just pull up a FHA mortgage document and use that.

This way…
a. The buyer gets his deed regardless of the risk of default
b. You get to assume the risk of default
c. You get to spend all the money you got from the buyer himself, judicially foreclosing in the event of default.
d. The buyer squats rent free in your house and recovers all of his down payments plus another down payment he’ll give to the next sucker who finances him and gives him a deed.
e. You still don’t get your house sold.
f. You still don’t make any money.
g. You inherit a rehab project at the end.
h. Did I mention you’ve got the house back; it’s a rehab deal; and you haven’t made any money?

Yes, that works, too.

Why would a buyer put a down payment without be attach to the deed? On a land contract if it is not recorded the seller could go out and take out loans and run south.

You’re talking about a buyer with options. I’m talking about a buyer w/o options who wants to live in a NICE house today, not five years from now.

Evidently, you don’t like Land Contracts? That’s fine.

Notwithstanding, the seller (me) notarizes a deed in favor of the buyer, but the deed remains with “me” (note servicing company, escrow service, etc.) and is recorded when I’m paid off.

If the buyer records a “Memorandum of Agreement” or “Notice of Agreement,” and subsequently defaults…I have to go to court to remove the lien. But… then, I’ve got to prove a default and prove possession, if not fight with the buyer over a quit claim deed notarized ‘back’ to me. And all of the sudden, I might as well have offered an FHA loan document.

Would you sell the house from under your buyer who is about to make it possible for you to realize a $115,000 equity recapture?

What incentive would I have to pull that kind of crap with a legitimate buyer?
Not to mention that it’s a felony to sell the same house to two different buyers at the same time. There’s too much money to be made to risk investing from prison.

Just for sake of discussion:

If I caved to the buyer’s demands to record “something” against my house, before he paid me off, then I want him to sign and notarize, at minimum, a Quit Claim Deed in my favor, in advance, so that when he defaults, all I do is record the Quit Claim Deed. Now, this is not legal (enforceable) in some states like California. Just saying.

Notwithstanding again, if this is a one-off situation and I have no reputation for honesty; I operate out of a van down by the river, then I can imagine the buyer might insist that something be recorded.

However, short of that, I’m the one that defines the terms, not the buyer. If I lost control of the negotiations over a recorded document, then I’m probably not ready for prime time, if not having the ‘wrong’ buyer on the hook in the first place.

It’s interesting that you bring this up, because this represents ‘conventional thinking’ (not a bad thing, OK?), but when we’re extending ridiculously, non-conventional, if not generous terms, to a buyer who can’t get financing any other way, than through us, we can command ‘ridiculous’ restrictions, such as ‘not clouding the title’ on the house we’re seller financing.

Bottom line; no liens, no memorandums.

If the buyer wants those he can shop for another 2,000 sqft, 3/2/2 with non-qualifying, owner financing, with less than 10% down. Go ahead. Make my day!

I love Land Contracts. All I was saying there are a lot of shady sellers that will mortgage the home after they sell it under Land Contracts and then default the reason the seller get away with it is a title search will not show a Land Contract been recorded.

Thanks, a lot for your informative reply. The prospect is an investor and I’m assuming he’s planning on sub leasing the property. He knows this property has been on the market for awhile and is actually the contractor I used to make the repairs. I’m not exactly sure his motives but I’m guessing he thinks he can sell the house to whoever he leases it to for more than we would agree upon. I’m waiting to hear back from him on the details he’s offering, I’ll let you know when I know more. Thanks again for your help.

I kind of missed your question about the seller somehow ‘selling the house without recording an agreement and then taking out a loan and running ‘south’ with the money…’

That reminded me of a story from Barney Zick…

Early on a Saturday, a man was sitting in a rocking chair on the porch of his house. There was a sign reading “Seller Financing - $4k Down - $50,000 - Payment $200/mo” …

Several people stopped to inquire about the low price, the low payment, and the seller financing, and in no time had several interested prospects. However, one the prospects quickly brought the money to the seller, but asked if he could close the following Monday. The seller agreed to wait until Monday.

Monday came. The buyer excitedly knocked on the seller’s door. The lady of the house answered. The buyer asked for the man who was sitting on the porch last Saturday." The lady asked, “What man?” The buyer responded, “The man in the yellow shirt that accepted my down payment and agreed to wait until today to close.”

Astonished, the lady exclaimed, “This house isn’t for sale! I have no idea what you’re talking about. I live alone, and I just got back from vacation yesterday.”


I’ve had prospects think what I was offering was too good to be true and started grilling me on details and making me defend my offer… I had one man suggest that I was worse than a used car salesman offering no-qualifying financing with a ‘low rate’ but with a high sales price. These are the same bargain hunters that want their cake and eat it, too. Low price, low payments, no qualifying, seller financing, and for a decade to boot.

I used to get flagged on craigslist for advertising ‘no qualifying’ ‘no credit check’ I can only assume the craigslist-lurkers-flaggers-police thought I was lying.

No credit check and no qualifying owner financing seems too good to be true to them. Of course that’s exactly why I can flip a house so fast and for so much. Just saying.

The person you was talking about sitting on the front porch wearing overalls sitting in the rocker chair was a tired investor stop to rest and take the load off his feet.

Sorry it took me so long to get back with the details, the prospect offered these terms:

He has couple that is interested in the property. He said I would be the bank and get a note on the property, all my funds would stay in place and we would split the cash flow and expenses 50/50. The couple would put $2000 down and rent would be $750 after taxes, insurance and maintenance fee (after one month buyer will pay maintenance), $500 cash flow, purchase price of the home would be $100,000. At the end of the term (has yet to be discussed) I would get back my initial investment ($85,000) and half of the sale profit.

Any help would be appreciated.

So much over-thinking…just go ahead and take the lease option deal, 3k down, $500 mo, 36 months with a sale price of $115k. As a “bonus” offer to apply $200 credit towards purchase price for all payments made on or before the due date.
Since you don’t need the money, put the monthly payments in your favorite interest bearing investment account and hold it for any repairs you may require later. Spend the $3k on Christmas presents. Odds are the “tenant-buyer” is going to fail, which means you keep all the money and will re-list the property later.

Happy investing.