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.