Posted by JohnBoy on July 13, 2004 at 12:26:33:
“You anticipate a sell and then hear stories how now they can not and that is after you “discounted the rent” because of the lease option.”
Discount the rent? I never heard of anyone “discounting” rent for a lease option…at least investors doing this.
I always get a “premium” for rent for doing a lease option. Why would anyone discount the rent when you can get premium rent on a lease option?
“DO NOT discount rent for consideration of a signed lease option and collect non-refundable deposit upfront as a forteit for non-performance of contract.”
I never heard of investors discounting rent for consideration of a signed lease option. Why would you want to do that?
Why would anyone want to collect a non-refundable option deposit as a forfeit for nonperformance of contract on a lease option?
None of these things make sense in a lease option.
In a lease option I don’t collect deposits for nonperformance and I never certainly discount the rent.
I get a premium for rent and I collect option consideration for selling an option on the property. In some cases I offer a “rent credit” if the optionee exercises the option and purchases the property, but that is in no way giving a discounted rent just for lease optioning the property. It is a credit for actually buying the property, not for renting it with a lease option. It is actually a discount of the purchase price if they buy the property. It has nothing to do with discounting the rent. They pay the full rent whether they exercise the option or not.
The option consideration has nothing to do with being a forfeit for nonperformance of the contract. The option consideration is for selling an option on the property and that’s it. It doesn’t matter whether they exercise the option or not. That is money paid for selling an option and taking my property off the market, tying it up for a period of time, committing to sell it to the optionee within a certain period of time, risking the loss of future appreaciation, and for me forfeiting the right to sell to anyone else no matter how much more they may offer to buy it for before the option expires.
If people are structing lease options the way you described then I can see where they are getting into trouble and lease options are being reclassified as a sale.
Properly structured lease options don’t involve collecting option “deposits” for forfeit of nonperforming contracts and they don’t involve “discounting rents” for doing a lease option.
Option consideration is paid merely for selling an option. Whether they perform or not by exercising the option makes no difference. They are not obligated to buy. They have the OPTION to buy or not buy.
Rent credits, if offered, have nothing to do with “discounting rents” for doing a lease option. Rent credits have nothing to do with discounting rents. Rent credits have to do with reducing the purchase price IF they exercise the option and buy the property. Otherwise there is no rent credits given. Option consideration, IF offered, is applied to the purchase price IF they exercise the option and buy the property. If they don’t buy the property then there is nothing offered in exchange for doing a lease option.
They buy the option. They lease the property. That’s it. Anything else is subject to them exercising the option or it is not offered or given.
This would be no different than me advertising my house for sale for $100k, and you as a buyer come along and I offer it to you for $90k if you can close in 30 days or something. Everything is tied to you actually buying the property. It has nothing to do with whether you lease the property or have an option on the property.
If everyone was structing their lease options as you described above it would be disastrous. I can see why your family of investors never liked lease options. They don’t understand how to properly structure them.