I have a homeowner that is a good candidate for a lease option wholesale. I am wondering what are the risks for me and for the seller if I do a lease option, and wholesale it to an end buyer.
Legal risks? What if something happens to the house, and the seller can’t sell?
Also, can the seller spend the rent premiums if it is paid into an escrow account first, then paid to the seller, and the tenant buyer gets a receipt from the escrow agent saying the payment was toward downpayment for purchasing the property?
Has anyone ever had any issues with lease purchase option?
Your questions are somewhat vague to be able to answer. In any and every real estate transaction there is a chance something won’t go as planned. The devil is in the details, I suppose, the type of lease option deal you are doing and the paperwork you are using to protect your interests.
When you say a “lease option wholesale” what exactly do you mean?
Sorry to be confusing. Yes, I am talking about wholesaling a lease option i.e. signing an assignable lease agreement and assignable option agreement with a seller, then finding an end tenant/buyer and assigning both contracts to him/her.
This is why I am asking the question about risks: As I understand it, when I assign the option to the tenant/buyer, I keep all or some of the downpayment as my fee. I have heard that in cases where a tenant/buyer is unable to exercise their option through no fault of their own, I would have to repay that downpayment. So now I am wondering what other risks are involved.
I have never done a L/O before and want to be sure I properly understand the ins and outs before trying it. Also, since I believe in full disclosure with my sellers, I like to know all the risks involved so I can educate them accordingly.
You need to make sure that there are no lien on the property. If there is a lien you need to let the party you assigning both contracts to know that and it should be put in both contracts. If you don’t disclose everything you might want to look over your shoulder.
Lease-options are usually done during a slow real estate market. During a hot market, the seller can simply sell the home in the normal manner. Sellers who use a lease option strategy to make definite sacrifices. There is positively a practical benefit to just cash out of a property and moving on to another investment.