Newbie Lease Option Problem Help Quick!! - Posted by Joseph Madera

Posted by Brent_IL on October 30, 2000 at 18:51:48:


Newbie Lease Option Problem Help Quick!! - Posted by Joseph Madera

Posted by Joseph Madera on October 30, 2000 at 16:44:05:

I was calling on the rentals on the classifieds ads and came across a 5bd 5br house renting for 7500 a month.I offered the person a lease option and he said he is interested with one exception.He wants to know what tenant I am going to place there.These are his words."I want to make sure you don’t put 18 haitians in there that wreck the place."I found that to be offensive even though I’m not haitian.Anyways I think I can sublet this to some wealthy foreigners from Colombia because lately many are arriving to Miami .This due to kidnappings and a deteriorating economy.I’ve met some in the cab and they have told me some hair-raising tales.I’ve also met some realtors that have told me that these people have alot of money.They easily have 50-100K for down payment but can’t qualify or it is a very time consuming deal for the foreign national programs.

How do I word this in the contract?What type of option payment can I ask for?What terms should I place in the contract?Also can I create a owner mtg.? If so what should be the terms?I think the owner would prefer the lease option.He did tell me that he would be willing to sell after the lease expires.Any more suggestions?

I was suppose to the owner tonight Monday night but I have to wait for you experts out ther to help me out.

Re: Newbie Lease Option Problem Help Quick!! - Posted by Ginger Harris

Posted by Ginger Harris on October 30, 2000 at 23:39:53:

Your contract had better be able to hold up with a bank when the option expires and the tenant wants to purchase it. There are special circumstances lenders look at. So can you make the $7,500 per month payments when you don’t have a tenant? What a way to start out and immediately ruin your credit if you cant’t. If you have that much to extra to be able to cover then I’d suggest using cash as leverage for lower interest rates and better terms. Anyway, I agree with one posting that says don’t start the payments until you have a tenant. As a real estate broker, I have done three lease options–two of which turned into purchases. But I had to call the Oregon real estate agency and be very careful. Once I even went to ask a lawyer’s advice. They are harder to write up than a basic real estate purchase because you have to also include the entire real estate contract for the future possible purchase. No terms are to be negotiated at a later date. There were two option forms available at our local stationary store because they are not available through the place I buy my real estate contracts. The fine print on one stated that any taxes, insurance, or repairs that the owner paid for during the lease-option term was added onto the purchase price. Another lease-option form said that the owner was totally responsible for all repairs and costs and was not going to be reimbursed. All of the terms of the contract must be defined. This all applied to Oregon and I’m not sure about other states. Ginger Harris

Re: Newbie Lease Option Problem Help Quick!! - Posted by dewCO

Posted by dewCO on October 30, 2000 at 22:51:34:

Seems like you’re asking for some to post an entire course on LOs, with this question.

Re: Newbie Lease Option Problem Help Quick!! - Posted by JPiper

Posted by JPiper on October 30, 2000 at 20:19:59:

$7500 per month huh? And you’ve met lots of foreign nationals with $50K-$100K to put down that you met in a taxicab? Is this country great or what?!?

Tell you what though. Do yourself a favor. Why don’t you tie this deal up on a lease/option with this guy? Tell him he can approve the tenant/buyer. Start your payments when you find your new tenant/buyer.

Once you find the guy that can afford $7500 and has $50K-$100K to put down, assign your deal to him…taking the $50-$100K as your assignment fee. The seller approves your buyer.

But whatever you do…DO NOT stay in the middle of this deal…and DO NOT agree to make a payment before you’ve located this fellow that can afford $7500.

OH, and when this seller approves your new tenant/buyer…have him sign a release of liability…just in case.


Are you ready for some… - Posted by Curtis B

Posted by Curtis B on October 30, 2000 at 17:27:20:


Tonite is Monday Night Football! Don’t expect much help tonite. Maybe tomorrow will be a better time!

Who ya pickin?

Re: Newbie Lease Option Problem Help Quick!! - Posted by Pavon Bailey

Posted by Pavon Bailey on October 30, 2000 at 17:24:40:

Mr. Madera:

Good afternoon. I’ll try to help you the best way I can. I’ll take each of your questions and try to answer them. Ok…here goes:

“I want to make sure you don’t put 18 haitians in there that wreck the place.”

Tell the owner that you cannot live with the tenants, so you really can’t guarantee what will happen. You can prescreen them to see if they qualify, but you won’t be living with them. Assure the owner that you will only look for reliable, “high quality” tenants to put in the home. That’s where the prescreening comes in.

What type of option payment can I ask for?

You can ask for as much as you want. However, it’s customary to get 3-5% of the purchase price as “option consideration”. Tell the new tenants that this consideration is NON REFUNDABLE. Let them know that. Put in writing that the consideration is non refundable because if they default on the lease, they will try to sue you for the option consideration they gave to you.

How do I word this in the contract?

This question is pretty vague. How can you word WHAT in the contract?

What terms should I place in the contract?

As far as months, it’s customary to have a 3-5 year lease. However, this factor is not sacred. You can set the term of the lease for as long as you want, but 3-5 years is ideal. During that time, you want to help the new tenants arrange for financing so that you can get cashed out at the end of the lease term–or sooner.

As far as written contingencies, put in clauses that will protect you from the seller AND the tenants. For the seller, have a Lease with OPTION to buy contract that gives you the right to sublease. When you have a tenant, have a RESIDENTIAL LEASE Agreement with you and make sure that they DO NOT have the right to sublease.

Make the tenant responsible for maintenance and repairs of the property. Also, make sure that your monthly payment is enough to cover the seller’s payment PLUS gives you extra to deposit into your bank account. Negative cash flow is not good.

Also can I create an owner mtg.?

If you’re doing a lease option, then no. I was told that one can only create owner mortgages on contractual sales to purchase property, not lease options because, in actuality, you DO NOT own the property, you are merely controlling it. If the seller had agreed on a contractual sale, such as a land contract or one that deals with subject to or seller financing, then yes, you would be able to create the owner mortgage.

If so what should be the terms?

Doesn’t apply since you’re lease optioning the property. However, when creating mortgages, I’ve learned that it’s best to set the terms for 30 years but with a 5-10 yaer balloon. This gives you breathing room for the monthly payments (monthly payments on a 30 year mortgage is a lot less than monthly payments on a 15 year mortgage, assuming the borrowing amount is constant). However, the balloon would obviously be higher, so don’t throw in a balloon UNLESS YOU’RE ABSOLUTELY sure that the property will appreciate at a generous rate and that you would be able to sell it with little to no complications. If not, the balloon may explode in your face.

Any more suggestions?

Basically, just do your homework and make sure that the deal is favorable. It’s good to be nice in business, but do not solve a seller’s problem by making it YOUR problem. If that happens, WALK.

I’m a newbie, so most of this info was provided from learning experiences. Some pros may have better advice than mine, or may correct me for saying something wrong. If so, go with their advice. But ultimately you should do what your heart tells you is right.

One last thing. Ask the seller for rent credits. Rent credits are portions of the monthly payments that apply to the purchase price. It’ll help you out in the long run.

Have a nice and enjoyable evening. If you have any questions, please drop me an email.


Pavon Bailey

Re: Newbie Lease Option Problem Help Quick!! - Posted by Hal

Posted by Hal on October 31, 2000 at 24:18:07:

Pretty detailed for someone so “Wet Behind The Ears”!

What book did you read all of this from? Pee Wee Hermans Playhouse? Some of your answers are really bad. I mean really baaaad. Study up Pavon. Someday you’ll be answering questions professionally!

We Still Love ya!


Re: Newbie Lease Option Problem Help Quick!! - Posted by Jim IL

Posted by Jim IL on October 30, 2000 at 17:45:05:

And how many deals have you done?
Please, do not take this as a slam.
But, I seem to have noticed you giving quite a bit of advice lately, and you just happened along this board a few weeks ago, right?
Be careful.
I know that often times we want to help people so bad that we answer these posts. (I do it, so I know the feeling.)
But, make sure everything you tell someone is accurate, and/or based on your experience.
I know I am limited in what I know, and therefore will only answer things by sharing my personal experience with a certain technique or type of deal.
Perhaps allowing others to avoid the same mistakes I have made in my business and life.

Stick around, join in the discussion, but be careful when handing out advice, please.
And if you have this much time to post so often, then get away from the keys and go buy a house!
THEN come back here and tell us about it.
I’m only posting now because I just finished my day. (2 deals signed and 3 new meetings set for the next day.)

Jim IL

Re: Newbie Lease Option Problem Help Quick!! - Posted by Pavon Bailey

Posted by Pavon Bailey on October 30, 2000 at 20:13:40:


I thought I would be of some help, but maybe not. Maybe I should sit back and observe.

Chalk it up to experience, I guess. Next time, I woon’t be so hasty when answering a post unless it’s directed towards me.

I hope your next 3 deals prove to be successful. Have a nice day and thanks for the criticisms.


Pavon Bailey

Nice post! It cuts to the chase! - Posted by Frank C

Posted by Frank C on October 30, 2000 at 19:51:10:


Who is this Pavon? - Posted by Mike Kozlo

Posted by Mike Kozlo on October 30, 2000 at 19:37:47:

Waht are your credentials? How long you been doing REI? How many deals have you done in the last 12 months?

Your right, this guy likes to pass out info without knowledge. Maybe he ought to sit back and observe. Sometimes you learn more by listening than having diarreah of the mouth!

EXCELLENT POST JIM!!! BRAVO!!! - Posted by Milt

Posted by Milt on October 30, 2000 at 19:33:58: