Lease Option Questions - Posted by TEW, NJ

Real Estate Investing
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Posted by Monique on June 18, 2000 at 12:02:07:

TEW,

I was approached by a seller wanting to do the same thing. I got lots of useful feedback from people on this site suggesting NOT to do it. If the folks were having problems paying their lender for their mortgage, how will they be able to pay you for the lease? Also, there has been some litigation where former owners of pre-foreclosure houses sued investors for usury. The former owners later claimed that the transaction was not a sale-leaseback, but instead a very high interest rate loan. You can do an Archives Search on “Sale Lease Back” to find many posts on the subject.

Regarding your question about getting additional consideration from a Tenant/Buyer after the first year of a lease. If a T/B does not exercise their option during the option term, their consideration is forfeited. At the end of that term, you (as Lessor) can choose to offer the T/B the opportunity to purchase another option term with additional consideration. You could also increase the monthly lease payment at the end of the lease term as well.

I’d highly recommend investing in your L/O education. There is some great material at this site. It will pay for itself many times over in just one deal. Not knowing how to protect yourself could easily cost you ten times the price of a $395 course.

Happy Dealmaking!

Monique

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Lease Option Questions - Posted by TEW, NJ

Posted by TEW, NJ on June 18, 2000 at 10:09:56:

Having no courses on L/O’s, I am wondering if lease options can be established on a graduated scale. For example, If I set up a L/O to for someone on a house I’d buy from them and L/O it back to them (pre-foreclosure), can you structure the deal such that it is valid for 1 year at a fair return, but renewable every year with additional consideration for extending the L/O?

Why would I consider this? Because if someone truly needs a “bridge” to get them over a temporary setback through job loss, they may get back on their feet in short time and I’d expect less ROI. However, with each and every year that goes on, I would want a larger ROI for the time my cash was tied-up and I was carrying them.

On the short side of the picture, what do you do if they want to exercsize their option within 6 months?

Your thoughts?