lease purchase.

Dear Group,

I have been getting different feedbacks on this subject.

I currently own a 8 BD 2.5 BA Single Family home, which appraise for 150K range.

I have tons of interested families who wish to rent. But I have a few that want to buy down the road. So obviously lease purchase is the way to go.

I am asking $1400 per month for rent. And they have close to $4000/month income.

I am looking to sell this place due to the uncertainty of this area and high tax. $4800/year to be exact. which decreased my Positive cash flow to $200 per month.

to do a lease purchase, I am asking 5% up front as non refundable option fee. and also keeping an escrow account running for $200/month toward the final sale price. I am asking $180K for the house with an lease term of 24 months.

  1. I will make this escrow non refunable as well… Not sure if its legal. also is this escrow charged on top of the rent? ie $1400rent + $200 escrow deposit? or the $200 came out of my rent for the escrow?

  2. as mentioned the 5% option fee is non refundable. ($9000)

  3. What I am really afraid of is when they fail to pay the rent. I cant evict them like I would normally do with a lease (only) contract due to their equitable interest in the property. (landlord court wont work and I need to file a foreclosure which can take months of non performance in rent.

Some lawyer said I can carfully select verbish in my least purchase contract which will void all equitable interest of tenant. And so I can evict if I have to. terms like deposite should be avoid at all cost. use terms like fee. nonrefunable. etc.

while other lawyers said it doesnt matter what you do to the contract. As long as you are holding and received $ toward purchase. (even if its non refundable. The court will still role their fav.)

so in a nutshell, is this type of creative contract writing common among investors? or this lawyer pulling my chain and just want to draft my contract for $350?

Any help is greatly appreciated

House was purchased for $116K 2 months ago and close to $14000 in repair was spent.

Best regards and have fun investing.

Anthony (realstart llc)

Hey RealStart,

Im in shock how high your taxes are in your market. But in regards
to your questions;

  1. I would charge the 200 dollars a month for the escrow. But first thing is first, check or state laws and find out if this is legal!

  2. I typically ask between 3%-5%.

  3. A L/O is a LEASE with the OPTION to buy! Yes you gotta do a paper
    trail to protect yourself incase of non-payment. But this is a LEASE not a purchase so NO you should not have to foreclose on the property for non-payment.
    What I do in my L/O’s is stick in the paperwork that if payment is not recieved w/in 3 days of due date, an eviction notice will be issued.
    Again, check your laws for your state.

Sounds like you got a nice L/O going for you! Good Luck with it!!!


Thanks Money for the reply. What do you mean by what I have quoted??


To much information in your contracts is not a bad thing.
What i was trying to get to, ad the 3 days in your contract to protect
yourself. This meaning, if they are 3 days late on making their
payment, that they will get an eviction notice.

Just an FYI, when you are dealing with T/Bers, in my experience,
the rate of late payments or non-payments is very low. Most the T/Bers i have are good people with money, just poor credit score from
a past problem.

Give it a try and think possitive until the time comes!!!

Good LUCK!!


Okay, first, you DON’T do a lease purchase, you setup a lease with the option to buy.

Second, you DON’T escrow any amount on a monthly basis. The correct way to setup this is to put in the option contract something to the effect that if the monthly is received by the due date, then a $200 rent credit will apply and go towards the purchase ONLY IF the buyer exercises the option to buy.

The way that you’re setting this up, you will probably have to foreclose on the property because you are basically giving them equitable interest in the property.

Finally, you may want to pick up the phone and contact a few mortgage brokers in the area. Financing for stickbuilts is fairly easy to get right now, and you have to have some truly horrible credit NOT to qualify for 80-95% financing.

Selling outright may be a better choice, especially if there is an “uncertain” future for the area (by uncertain, I’m assuming that you mean bad, or deflation). Of course, if this is the case, then you’re also probably NOT going to get the property appraised for anywhere near $180K within a 1-3 year time frame.


WOW, where did I got wrong on that one LOL

are in a lease contract with an option, the lease comes first. Meaning
if there was a default, the lease would evict not foreclose!! This is excellent advise…

I better hit up my Attorney to confirm this but Thanks for the info!!! GOOD TO KNOW!!!



It really doesn’t matter if the lease or option comes first, or the lease and purchase, or the chicken or the egg. What really matters is the INTENT of the contract(s), and more importantly, the way the judge determines what the intent of the contract(s) were.

Take Realstart’s example above. First, Realstart needs to decide whether this is going to be a lease with option or a lease purchase. There is a difference. Even with a lease/option, collecting a $9000 option fee MAY be enough to cause a judge to rule in favor of a tenant/buyer, forcing a foreclosure over an eviction. I would think that the main points to cover here are a) Make sure that the t/b understands that the $$$ is NON-refundable (CYA form here), and b) make the lease and option for as long as your state legally allows (NC for example is 3 years). My guess is that taking $9K option fee and giving the t/b’s only 1 year to perform (especially without any help from the seller on getting them ready to finance) would appear to the judge that the whole setup was nothing more than an attempt to scam money from these unfortunate t/b’s.

Escrowing “rent credits” may be required in your state, I don’t know. You’ll just have to check your state laws to be sure. However, I can practically guarantee that if you do escrow them that a) will be viewed as giving the t/b’s equitable interest (they are paying off a principle balance) and b) that if it isn’t ruled equitable interest, that the money will have to refunded to the t/b upon lease termination. Since it was not included in the rent payment, but added on, AND escrowed, it is basically a downpayment buildup. IF they do not buy, then it should be returned.

Money’s idea on the 3 days late gets an eviction may or may not be a good idea. As he said, you need to check your state laws first. Here in NC, the payment isn’t late until the 5th day, maximum late penalty is 5%, and you can’t evict until 10 days AFTER posting a notice.

hope it helps,


Thank you for all these wonderful replies.

I have spoken to my lawyer today… he specializes in Landlord/tenant court issues.

He has drafted my lease and a seperate contract for an option to purchase.

He has assured me that you can still evict with the $ that received as a fee for option consideration and not deposit.

Also the extra $ paid into their escrow account $200 per month toward the purchase price, is refundable if they decided not to go with the option at the end of term, however, if they default on the lease payment (rent). They will get evicted and the said $200/month is not refundable.

Even if I have to foreclose for 4 months. The deposit I received should be able to cover the loss rent and repair cost.

The 5% of sale price ($9000) is non refundable no matter what. It is a FEE not a deposit.

He said that will work, he knows a few judges at the court house that he often visit (court cases) and thats the way we wish to proceed.

The consultation 15 minutes worth cost me $75
The addendum to the lease cost me $50
and the lease purchase agreement cost $350.

So in total I spent $475 today.

I could be wrong of what he had told me so… below is the disclaimer.

I am not a lawyer and please do not take what I type as bible. And Please contact your own lawyer for your specific situations.



Good work man!!!

Good luck with the lease option business!!! :wink: