Lease/Options Legality

Lease/Option and Lease/Purchases have been redefined by the Texas legislature and now are illegal. My question is can you do this type of investing in other states and which ones. Can someone help?


I think you will find a lease is legal in texas and a option is legal in texas, they just can not be in the same document and can not refer one to the other!!!!!

The reason states are doing this is that leasor’s have been putting up big sums of money for an option but if something happens and they fail to perform the lease, they have been losing the option and the option consideration money.

The new way is a lease, pay, pay, pay, lost job, don’t make payments, become evicted and move out, but option stays in place, has value and can be exercised or sold/assigned and exercised at any time and without penalty for failing to pay the lease. This way option buyer has a document and agreement with value reguardless of personal position or ability to forsee problems or lost employment down the road.

Some states allow lease-options and some states allow lease’s and / or allow options! (As long as one does not refer to, or is conditional to the other.)


what Gold River wrote is right on point.

Finally, I found someone who seems to be able to give me a straight answer on this topic. I’ve read recently that one option to “owner” finance a property is with a 6 month lease option, converted to a Contract for Deed or Land Contract for an additional 6-12 months until the TB arranges bank financing. Is this a feasible alternative? I presume reporting requirements are still in effect, at least in the case of the Contract for Deed?

With the method outlined by GoldRiver, I need some clarification. So you have two contracts, one lease, and one Option to Purchase.
-Is there option consideration AND security deposit? Are they refundable?
-If the two agreements are seperate and distinct, what about rent credits?


I am sorry to tell you GR did not outline that as a method, it is Texas state law!!!!!

One lease, IE Mr. & Mrs. Smith will Lease 123 Oak street for 3 years for $1000 per month!!!

One Option, IE Mr. & Mrs. Smith will Option 123 Oak street for 3 years for a one time option consideration of $10,000 dollars.

You do all the things you would do to lease a property, security deposit, pet deposit, extra adults deposit, extra car deposit, credit check deposit, horse deposit, etc. anything you would normally do because what you are in fact doing is “Leasing The Property”!!!

You do anything you think is reasonable to Option the property! One year Option for $2500 dollars with optionee credit of $2500 dollars! Two year Option for $5000 dollars with optionee credit of $5000 dollars! Three year Option for $10,000 dollars with optionee credit of $10,000 dollars! Because what your doing is “Selling an Option” to buy your property up to some point in the future.

There can’t be a rent credit because the rent / lease has no bearing on and can not refer to an option!!! The Option can not refer or have bearing on the rent or lease!!!

You can not have a “Lease Option” in Texas (A lease-option is illegal under Texas law), “Only A Lease” and / or “Only A Option”!!!

So if you rent-lease to Mr. & Mrs. Smith and you also sell an option to Mr. & Mrs. Smith and Mr. Smith loses his job at the stock yards (A Texas Job) and Mrs. Smith loses her job at “The Rattlesnake Roundup” it’s a Texas event that takes all year to plan and set up, because the rattlesnakes have moved to New Mexico and the Smith family moves out in 5 months way premature for the 3 year rent-lease agreement, the Smith’s still own there Option and can either exercise it at any time up to 3 years or can sell it or assign it to Mr. New Mexico who made his fortune rounding up Migrating Texas Rattlesnakes!


Despite all the confusion…YOU CAN DO Lease Purchases in Texas. You just have to include specific verbiage & certain information in your paperwork which is in compliance with the Texas property code regarding conveyances. Also…you have include a verification of loan information/authorization to release information form. When the Texas legislature passed this a few years back…it was basically to protect the buyers from sellers who weren’t current on their payments and that the house isn’t in foreclosure.

As we do our deals slightly different than most other Lease Option people… I DO agree with Mr. Gold River…It is ALWAYS best to keep the lease agreement and the option agreement separate no matter what state you are doing deals. This helps with not creating an “equitable interest” for the prospective tenant/buyers in the property. One way you have to evict and the other way, you have to foreclose. It’s just a cleaner/better way for everyone involved in the deal.


Follow up question…what happens after the Smiths moves out up to the end of the 3 yrs?

I mean you will be able to do another lease with another tenant but you cannot do another option because of the existing Smiths option. You can only do another option after the smiths option has expired, right?

Yes! It can be.

I hear talk that only the owner can retain the option “deposit” if tenant buyer defaults -
So the “sandwiched” investor would be on the spot for the option’s duration ? I can’t find that anywhere.

Ran across this and it may help.

Been there - doesn’t help. :banghead

I hear a lot of talk, too. Talk is cheap. All these so-called experts who are crying gloom and doom in an attempt to sell you their latest seminar and boot camp have yet to produce the specific citations that back up their many statements. I guess that info is only available for those wise enough to shell out $3,000 (or is it $5,000), to attend their boot camp.

Yea, tough weeding through the funk having an actual working brain these days.
I hear direct cases of tenant buyers suing and losing over losing a hefty deposit that was clearly disclosed as nonrefundable since the 2005-2008 changes - So the hear-say must be bull.

Plus the whole Texas lease-option issue is a murky and risky as it gets - I’ll keep on a trusted path until I see a case of another investor’s neck on the court room’s chopping block :cool

Amazes me how many folks are or wannabe investors who can’t balance a check book, save and control those sham credit cards.