Posted by JPiper on March 09, 2000 at 08:24:57:
Some subprime lenders right now will refi a lease/option. This means that they look at the appraised value of the property rather than at the purchase contract, down payment, etc. Naturally there is no rule that any lender do any particular loan, so understand this is available now, but might not necessarily be at some future point. Either way, keep your deal well documented.
JPiper
Option Consideration Concern - Posted by Ned
Posted by Ned on March 08, 2000 at 05:48:53:
If I lease option to a tenant buyer and I collect $7,000.00 as option consideration and the tenant buyer decides to exercise their option, how does the tenant buyer prove to the bank that the down payment was paid to me?. What if I’m using this cash to do other deals? Do I have to produce this money when he decides to exercise or do I just state to the bank that it was paid to me with the option agreement paperwork that was done 18 months ago? Also when doing a lease option agreement do I also collect 1st months rent and security deposit, or is the consideration enough?
Forgive all of the questions for I am a newbie investor.
Thanks a lot guys
Ned
Re: Option Consideration Concern - Posted by JPiper
Posted by JPiper on March 08, 2000 at 09:32:58:
Unfortunately, lenders aren’t going to be satisfied with just “stating” that you received it.
What I would suggest is that you collect the option consideration by separate cashier’s check. Tell the tenant to make sure he keeps his copy in a safe place, because he may have to reproduce proof at the time of exercise. Further, you should make a photocopy of the check for your records, and then deposit this into your account on a separate deposit ticket. Keep the photocopy of the check together with the receipt you receive when you deposit the check in a safe place…because you may have to produce them at a later date for a lender.
Further, the best strategy is to receive your monthly payments by personal check…and again, inform the tenant that he should keep those cancelled checks in a safe place. You should make copies of the checks as well. If practical keep a deposit slip showing the deposit in your account.
Bottomline is that you should carefully document EVERY payment from the tenant. Lenders are into documentation…they live and breathe documentation…and so should you.
A small security deposit would be wise, inasmuch as it is customary in a lease. I wouldn’t go so far as to make this some type of huge security deposit…keep in mind that most states have very strict rules concerning security deposits…typically regarding size, and the manner in which they have to be refunded. But if you receive a security deposit, make sure this check is separate from the option consideration.
Finally, keep in the back of your mind that it may be possible for the tenant to “refinance”, instead of getting a purchase money loan. If so, the question of “down payment” becomes a moot question.
JPiper
Re: Option Consideration Concern - Posted by Bill K. - FL
Posted by Bill K. - FL on March 08, 2000 at 08:51:31:
Ned,
I think you will have a hard time getting a bank/lender to accept the option money as a down payment. After all, what is to prevent you from giving it back to the buyer so they have 100% financing? (That’s how they look at it). Why not credit it to the purchase price instead? Also, the previous idea about having a seperate option and lease is a good one. Get the option $ and also get first months rent in advance as a minimum. From your point of view, you could consider the option money to be your security but don’t write it up that way. Or, you could split the 7K and put some toward option $ and some toward security. (i.e.; 5 and 2 or 4 and 3)If they don’t exercise the option you keep the option $ or renew, if you like, with a higher purchase price, and/or rent,plus more option $/security if possible. If they don’t pay the rent or keep the terms of your lease, you evict. Their option would stay in effect, but with a recent eviction, it’s doubtful they could exercise it. If you do evict, sell again same way. (Make sure your options with buyers don’t allow for transfer to another buyer)Good Luck.
Bronchick’s course - Posted by Laure
Posted by Laure on March 08, 2000 at 06:59:44:
I would highly suggest getting Bronchick’s Lease Option course. I did two L/O’s last year before I got his forms and kit. I haven’t lost any money YET… but I left some doors WIDE OPEN! One deal will pay for his course. It’s money well spent.
Bill recommends to collect some deposit money as well to strengthen your position, if you ever go to court, that you entered a regular lease with this Tenant. He uses a Lease separate from an Option document.
Laure 
Re: Option Consideration Concern - Posted by GChung
Posted by GChung on March 09, 2000 at 01:30:02:
JPiper:
You lost me on your last statement: "Finally, keep in the back of your mind that it may be possible for the tenant to “refinance”, instead of getting a purchase money loan. If so, the question of “down payment” becomes a moot question.
Please explain. Also thanks for correcting me on the trustee/land trust question.
Re: Option Consideration Concern - Posted by TRandle
Posted by TRandle on March 09, 2000 at 15:44:15:
Bill,
You may already know this, but Bronchick advises putting a clause in your option agreement that states any default on the lease invalidates the option. Bingo! Eviction equals nullification…