Tips On Lease Options

By Brian L. Pruitt

Lease options. So many people steer away from this opportunity to increase their real estate wealth due to the lack of knowledge of this technique. I will try to answer some of your questions and concerns within this article.

Safeguarding your option is an important step in the process, that if not considered can reach out and bite you. Lease options are a wonderful tool for real estate and can be the answer to a deal if nothing else seems to be working for a certain piece of real estate.  So what happens if the seller decides not to live up to his end of the bargain? Before you say the "S" word (sue) let me bring up some thoughts that could be far less expensive and save you many headaches.

1. Escrow the properties deed. This is if you are lease/optioning a property from someone else. Think about this for a moment. If the seller skips town or passes away or even ends up in jail for not paying his taxes, how would you get access to that individual to obtain their required signature on the deed to make that property yours? Escrowing the deed with an attorney or a title company (having them hold the title until the term of the lease option matures or you exercise your option) is a simple way to protect yourself and your option. You would, at the time you wish to exercise your option, pay your outstanding monies to the title company or attorney and collect the pre-signed title.

2. Record the mortgage of the property. This too, is a action to take if you are lease/optioning a property from another person. If you record your option you would then become a lien holder for that property. If the seller fails to follow through on his end of the bargain then you would simply foreclose. Under normal situations a mortgage is recorded to insure the lender the right to payments on a promissory note. With this technique you are simply performing the same function.

3. Steering clear of the equitable mortgage. Now lets turn the table slightly and suppose the tenant/buyers (lease/option individuals) of your property fail to pay their contractual monthly payments and you need to evict them. Not all evictions go smoothly. There is, at times, an argument that the lease/option is more a seller/buyer relationship then it is a tenant/landlord relationship.  This infers that you would need to foreclose on the person(s) rather then just evict them. To insure that your agreement "looks" like a tenant/landlord agreement try these tips.

• Ask for a security deposit, which is something that a landlord does.

• Allow short, not longer then one year lease/options. You may include additional terms to renew the lease/option if requested. However keep any rent credits minimal. The more equity a person has in the property the more they begin to look like a buyer.

• Last but not least pay the insurance and taxes on the property. If the taxes and insurance are paid by you, it will look like a tenant/landlord relationship, not a buyer/seller relationship.

• Be very careful on the wording of your contracts. Keep the words buyer, seller, credit, and equity out of your agreement contracts.

Lease Options can be very profitable if you cover all your bases. If you are new to the lease option technique then I would recommend that you seek out a knowledgeable attorney, that is very familiar with the lease option technique, and retain them to review/construct the appropriate documents. If you are unfamiliar to with which attorney to select then look for references from your local real estate investing club or makes several calls from the yellow pages. Speak directly to the attorney that would be performing the contractual work. If they are to busy too speak with you over the phone then that could be a sign they will be to busy when you need then the most. This step could just very well save you money and headaches down the road.

Do your homework and study-up on the techniques of lease options then go out and find yourself that next deal of a lifetime.

Keep Reaching, Keep Dreaming!

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