L/O Question as buyer - Posted by Maurice (So. Calif.)

Posted by Maurice (So. Ca.) on May 14, 1999 at 14:02:55:

Thank You Brad & Tom…that does really help. This board is such a wonderful source of info for the beginner & seasoned investor alike… :wink:

L/O Question as buyer - Posted by Maurice (So. Calif.)

Posted by Maurice (So. Calif.) on May 14, 1999 at 11:17:35:

Hello all:

Thanks to everyone who’ve helped me in the past. I have a question regarding buying on a lease-option to live in. I’m sure the terms should be different in this situation compared to if I planned on sub-leasing out immediately or assigning, but again this is going to be for my family & I to live for awhile (at least a year or so).

So with this in mind, how should I make the offer to sellers that will benefit me, i.e. protect me as potential buyer, possible tax benefits, etc. Of course I’d like to be able to put no money up-front, but I will if I have to (security deposit, etc). And because this will be my first home, I’m sure eventually I’ll be selling my option or sandwich-leasing & finding another home to live in. I just want to structure it to my advantage as the dweller.

Any help would be great. I’m sure that some will suggest I buy some courses that is specific to lease-options, & I will as soon as I get a couple of deals under my belt first. So right now my C. Sheets course will just have to do, but again I would appreciate some expertise on this.

Thanks again…

Re: L/O Question as buyer - Posted by Brad Crouch

Posted by Brad Crouch on May 14, 1999 at 12:01:35:


Just do it the “standard” way. Lease for 3 years (or 2 years, 11 months and 29 days). If possible, negotiate two additional renewal terms, giving you control of the property for 9 years.

When you want to move, you still have the option of assigning your “control” or sandwiching yourself for a monthly cash flow income, with the potential for a spread on the sales price at the exercise of the option.

You’re not going to get ANY tax benefits unless you use the PACTrust method (see IRC 163 (H) 4 (d) for details & requirements).

I would recommend Bill Gatten and Cal-Equity for PACTrust information. Just click on the Cal-Equity banner at the top of the newsgroup page.

If you decide on a standard type lease option, get the lease option courses from Bill Bronchick, Joe Kaiser or Ron Legrand. Understand that the documents you would use as a buyer are different from the documents you would use as a seller.

These lease option materials that I am recommending are relatively inexpensive, and I don’t make the recommendations lightly. I realize that you may have a “shortage” of funds right now, but acting without a clear plan and knowledge of what you’re doing could be harmful to your financial well being.

The Carleton Sheets materials are good for someone just starting out, but they lack the detail that you will need to pull this off.

Good luck,


Try This - Posted by Tom Farr

Posted by Tom Farr on May 14, 1999 at 11:51:12:


Since you’re in Southern Cal anyway, look up Bill Gatten at www.cal-equity.com. Bill works with a PACTrust system, whereby the “renter” gets the tax benefits of ownership. If the owner is not willing to place his property in trust and “go along with the system,” I would emphasize the following in your lease option dealings.

Minimize the dollar amount monthly or annually in maintenance charges that you, the tenant must pay.

Try and find out what the owner’s PITI or total payment is? You should then negotiate the lowest spread over this monthly payment, and suggest a rather healthy “rent credit.”

When negotiating your price from which the rent credit is deducted, begin with 10% below market value. Your argument is that as a seller he or she would have paid a (probable) 7% real estate commission and at least 3% in garbage closing fees. You’re asking him to pass the savings along to you.

Also, you may want to negotiate a term which is 36 months or longer. Why? Most courts would hold that with a term this long, you indeed have an equitable interest in the property.

If you’re looking for a good course, I’ve seen quite a few of them (except for the PACTrust course), and would recommend Bill Bronchick’s course, which can be had right from this site.

Hope it helps.


Tom Farr
Denver, CO