What to do if a buyer voids his monthly option monies?

Hello to all, if you choose to structure the lease option with the the tenant/potential buyer that he pays you a check for rent and a check for the option money and he neglects to pay the option money, what penalties would you enforce against the tenant?
a) charge some type of interest
b) his failure to pay the “option money” would automatically void his option to purchase???

Well, an OPTION is a one-time fee paid by the optionee to lock up an asset according to agreed terms. It is not an on-going payment (except for renew cases).

If you mean “rent-credit”, that is a whole other thing.

If work a deal like this “$1000 lease, $200 rent credit”, then take a check for 800 and 200, then have a TB that does not buy, you could end up forking over all those $200 checks you took.

Those $200 checks will be viewed as payments on the property that the TB elected not to buy, thus monies need to be returned.

Evergreen, to clarify myself, I have read that if the tenant/potential buyer cannot provide the option money that you request
For example, you desire $3,000 in option money, but the tenant/potential buyer can only provide $2,000 dollars. So you create an arrangement that you would collect the remainder of the option money (excluding the rent) per month. If this individual violates this agreement for the month, what can you do

Should I simply dismiss a tenant/buyer if this person cannot provide the $3,000 option money upfront to avoid any legal disaster or paying back of monies…

Thanks for the response

Well, this is just my OPINION :smiley:

I would either:

A. dismiss the TB. All or nothing. If the market is really junk and you think the odds of you finding a TB in the next month are nil then:

B. Reduce the option fee to what they have, period. Raise the lease and/or lower the rent-credit to compensate. This keeps things much cleaner.

Here is an example of B.

I want, as you said, $3000 option fee. The TB has $2k. I accept $2k, but I raise the lease $50 per month, lower the rent-credit $50 per month, and add $500 on to the sales price.

If your lease was decent to begin with, your prospective TB should not mind the $50. If the lease was say $1000, this is a 5% increase and should not be a deal breaker. In the end, you have the potential to make more. If 24 months go by and the option is then exercised, you made $1200 in extra rent, $1200 in gained rent-credit, and $500 on the sales price.

If the TB has an issue, continue to work until the deal is done. You could tack on double what he/she is short to sales price and add a small lease increase. Even $10.

I am sure others will chime in. Everyone has their own rules and what they are shooting for. Some owners might need to recap cash ASAP. Others are willing to wait for higher returns. I tend to keep things clean and organized and am willing to wait a little for more cash.

Someone who can come up with $2000 should be able to come up with $2100. Never settle on just what they say. Every dollar counts.

???Are you putting together a contract for your lease option tenant or are you already in the deal?

If you are putting together the contract than you can specify your terms that if the option portion is not paid that amount due will be added to the back end of the deal.

If the option money is not paid for three consecutive months then the whole deal has to be either renegotiated or the deal is null and void and the tenant agrees to revert to a lease only.

Hi ginasands I am an investor and I have no experience with giving tenants lease option contracts. I have been doing my research and observe the potential and the lessen fiscal liability that lease options provide. I was tenative in the past about using them, but now I am trying to gather all the facts so that I can create a lease-option contract that contains minimial or no loopholes that will be to my financial detriment.

Hey Evergreen, thanks for your reply, I think I am beginning to understand the legality and economic dynamics of the lease option.