If someone asks you “what is a lease option?” what would be the
best way for a newb like me to answer that question (particularly if it’s coming from an FSBO willing to consider this alternative)?
I know it’s discussed here a million times over but I’m looking for a concise way of presenting it and I’m asking you experienced people because I don’t want to screw up planting this seed in the back of the sellers’ minds.
Thanks to anyone who takes a few minutes to answer me! :-\
I searched and searched for the answer to this very question. After calling and receiving calls from hundreds of sellers, and trying countless ways of explaining the process, and consulting with dozens of investors. I came to the conclusion that there IS no answer!
I use the line: “Would you be interested in selling on a rent to own basis?” as a method of screening sellers for interest. I use “rent to own” because more people around here understand it than “lease option” or “lease purchase”. Since switching to rent to own I hardly ever have to explain what it is. But I still get the occasional moron to which I reply with whatever explanation hits me at the moment, because I’ve found none that really do the job.
In fact I’m seriously considering just saying: “I’m too busy to explain right now but if you go to my website you can read all about it at your leisure.”
Why? Because I find it’s just a waste of time to explain. If they aren’t familiar with the basic concept then I’m utterly incapable of persuading them, so I might as well just move on to the next. Besides, most people know enough to be able to say “yes, let’s discuss that” or “no, I’m not interested”.
Now… answering other questions AFTER they have said yes is a whole different ball game! That I’m only too happy to do because I know it’s leading somewhere 
However, if you insist on explaining what an L/O is. I suggest using the car lease analogy, it’s the one that people are most familiar with.
Lease Option - a lease combined with an option agreement that gives the lessee (tenant) the right to purchase the property under specified conditions.
A lease option is a bogus sales contract that is in violation of the Due on sale clause. It is simply a deferred payment contract. However, most lenders are just happy to have the payments made and ignore the violation.
Why do you seem so much against Lease/Options. There is nothing wrong with them. Did you perhaps get burned at some point in time because you failed to protect yourself?
Doing Lease/Options is completely legal and it’s a great way for a new RE Investor to get his/her foot in the door. Perhaps you do Lease/Options yourself and don’t want the competition doing the same thing so you’re trying to make others afraid to use this method of REI.
I’m just trying to understand why you seem so angry in your posts about Lease/Options.
Spedrick, it’s because Gary is selling pactrust consulting, and the only way they know how to get business is to use scare tactics about every other form of interest transfer. But they seem especially fond of dissing lease options.
I have bought and sold many properties using lease options since 1979. However, a land trust has many advantages over a leade option.
Example: The buyer (lessee) can legally write off the mortgage interest and property taxes in a trust transaction, and shares future appreciation in all my transactions. Can you say that for the buyer is a lease option?
My transactions are three years and at the end, the Buyer is able to REFINANCE the property. An optionee in a lease option cannot.
The Buyer is my transactions has all the benefits of home ownership the day he/she moves in. Not in a lease option.
In a lease option if the buyer is in default, you may well have to foreclose rather than evict if he is successful in claiming an equitable interest in the property. With a trust it’s a simple eviction – period. Reason: a land trust is personal property and the buyer’s interest is in the trust, not the property.
Unless you pay a collection service, you must collect the rent payments and handle all property management yourself in an option transaction. My trustee does it for me. He collects the rent, pays the mortgage payments and sends me a check each month for my positive cash flow.
Maintenance and repairs? In a lease option you HOPE your tenant takes good care of the property and are still responsible for the costs. In a trust transaction, it is the Tenant’s responsibility for maintenance and repairs, not yours, and my experience has been they take great pride in doing so.
I could go on and on, but the point is that I am not dissing lease options. They are legal (although they do violate the DOSC) and Texas is doing all it can to discourage them. They are a means of achieving a goal. In my opinion, they are just not the best or safest way to do it.
The trust is safer and more efficient and brings better financial results. I didn’t intend to scare anyone, just inform them that there are much better and safer ways to sell or buy a property.
As to approaching the seller, I simply TELL them that if they are willing to stay on the loan for 3 years and keep most of their equity intact, I will take over responsibility for mortgage payments, maintenance and repairs, property taxes, management, etc. on a three year triple-net lease. I tell them they will not be at risk and that I will cash them out in three years BEFORE they ever have to transfer title. Works for me.
I’d be happy to walk anyone through a transaction and share all profits 50/50 with my birddogs. Peace.