Reminds me of the question: “How much money do I take from the tenants?”
A: As much as they have!
Justin,
When I have potential home-buyer for a lease option, I pull their credit and check it out. I then give them several steps to follow to build credit - secured credit cards w/ local banks etc.
In the event their credit scores fall to unacceptable levels, I can terminate their option on the property. However, I run 3-6 month options w/ a 12 month lease and the options are extendable every quarter at my discretion.
Everything is in writing - all guidelines are followed by both sides as I really want them to buy my house (for market value). I make more money when it sells.
If they mess up credit or don’t pay, that’s not my fault.
There are other people who will never purchase the house and that I KNOW will never purchase the house. I still take their money too - they know EVERYTHING up front just the same.
Ethical and morale?
I expect both sets of buyers to purchase my house at a specific time and vice versa. I’m holding up my end of the bargain…ok, now where’s JTReed at?
Lease Option-Deposit-Morals? - Posted by Justin-N.FL
Posted by Justin-N.FL on July 14, 2007 at 09:08:11:
Should I feel guilty putting a buyer tenate in my home with 5000 down when I know that his credit score will never be able to come up high enough in 12 months to get financing?
Re: Lease Option-Deposit-Morals? - Posted by Scott Ames
Posted by Scott Ames on July 16, 2007 at 14:28:23:
My tenants gave me $15,000, then bailed on buying. I suspected they would, but I was not sure. You never can judge what someone can do. Sometimes other family members will help them out and they will buy. Most however will just let you have the money.
It’s nice to be concerned for them, but you also have to let them try. If they fail it’s not really your problem. If you feel badly when they can’t get their credit up to snuff, you could extend I guess.
If I were super wealthy I would refund the $15,000 to my tenants. They are nice people. They were fully aware they would lose it if they didn’t buy, and they are comfortable with it. I even offered to lower the price, but they fell in love with another property and really do not want mine anymore.
Re: Lease Option-Deposit-Morals? - Posted by Craig (IL)
Posted by Craig (IL) on July 14, 2007 at 18:27:28:
If you “know” this perosn will not be able to come up with the purchase, you may be held liabel. It would depend on the laws in your state or how bright a lawyer the tenant-buyer would find. Personally I would not do it. If you think the applicant might some day be able to make the purchase, have it reviewed by a broker or someone expert in this area, and write into your option contract what the tneant-buyer MUST do to impove his credit and ability to eventually make the a purchase. And if he/she does not taek these steps the option would be terminated. In this way you are giving the applicant fair notice.
The applicant might need more time, which you may be able to offer. Remember, though, never allow options to run past 3 years. Some judges have re-characterized longer deals as a veritable land contract, making things much more difficult for you.
I think that you have to balance what you will do IF they continue to pay timely rents, and cannot qualify for a new loan in 12 months, against whether you will grant an extension of time for the Option to purchase.
Personally, I am very liberal toward folks taking longer to close, as long as they are a seamless and headache free Tenant.
If you are stuck on the 12 month closing time frame, absolute, then I might have an issue accepting the deposit knowing that I will be giving them a notice that their option has expired, as you knew that it would, in 12 months without them being able to exercise their rights.
So it depends on you and how you will handle it when the can’t qualify in 12 months…
Lease Option T/B’s are interesting creatures… I too would consider refunding part of a large option deposit… EXCEPT if they are ditching my deal to purchase another one. Nix that program.
You take them in when they are unable to purchase any house on the block, nurse them back to financial strength, and when well they spurn you for greener pastures. The same psychology that likely got them in financial trouble to begin with. They don’t seem to learn… Oh well.
