Lease Options: The basics of Buying and Selling are quite simple really. Lease Options can also be referred to as Rent to Own.

Real estate markets across the world are suffering right now. Sellers can’t sell their homes and buyers can’t get mortgages. As real estate agents it’s a lot harder to earn a living now. Gone are the days of listing a home and expecting it to sell – it is time to get creative to not just survive but actually thrive in this economy.

What is a Lease Option?
Lease options are a way to buy and sell homes without an immediate conventional mortgage. It gives your buyers who can’t qualify for a mortgage right now the opportunity to get into a home right away while they improve their credit and build up a down payment while living in the home. They rent to own – rent now and then own (purchase). It gives your sellers the ability to beat their competition, which we know in these kinds of markets competition is great. Sellers can reach a far greater pool of potential buyers. They will likely be able to sell their home quicker and for a better price. For some sellers it may be the ONLY way they can sell their home in this real estate market.

How Does a Lease Option Work?
A lease option (aka Rent to Own) works like this: The buyer and seller agree to an option which gives the buyer the right to purchase the home during a set period of time. During this option period the buyer leases the home from the seller. By the end of the option the buyer must either purchase the home or forfeit their option fee. While the option is valid the seller may not sell their home to anyone else.

Advantages for the Seller
Here are some of the advantages to your home sellers when selling on a lease option:

1. Allows them to beat their competition. How many listings have you lost because the home sat on the market and never sold?
2. The seller can collect rent on their home while it would otherwise sit vacant.
3. They can often receive a higher purchase price.
4. They can sell their home in a down market when they otherwise might not have been able to sell at all.
5. Allows the seller to actually sell their home instead of just renting it. Have you lost any full commissions because the home was just rented instead of sold?

Advantages for the Buyer
Here are some of the advantages to your buyers when buying on a lease option:

1. The buyer can get into a home now, even if they can’t currently qualify for a mortgage. How many potential buyers have you turned away because they couldn’t qualify for a mortgage? No longer!
2. They can improve their credit and build up a down payment while they are already living in their future home.
3. They are not obligated to purchase the home at the end of the option if they decide the home is not for them, that homeownership is not for them or if the real estate market changes significantly.

This is an example of a purchase agreement that we might use with seller or one we might recommend that a seller use with their buyer.

 

LEASE WITH OPTION TO PURCHASE AGREEMENT

 

 

THIS AGREEMENT is made and entered into the date of this Agreement, as set forth below, by and between ____Sam and Sally Seller____________________________ (hereinafter referred to as “Lessor”), and ____Ivan Investor________________ (hereinafter referred as “Lessee”).

 

 

RECITALS

WHEREAS, Lessor is the owner of certain real estate located at _______123 Main Street _________________ __________________________________________ (PP#__13-58392047________).

 

WHEREAS, Lessor desires to lease said real estate to Lessee with an option to purchase granted to the Lessee upon the terms and conditions hereinafter set forth.

 

WHEREAS, the Lessee desires to lease said real estate from the Lessor upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the mutual promises and the mutual covenants of the parties hereinafter contained, Lessor and Lessee hereby agree as follows:

 

Lessor hereby leases to Lessee, and Lessee hereby rents from Lessor, the following described premises, hereinafter referred as the “Leased Premises.”

 

TERMS AND CONDITIONS

1. Term & Option to Purchase

The term of this Lease shall be for a term of __12 months to 3 years___________commencing the 1^st day of __July__________, 2011__, and ending on the 31^st day of _June______, 2014____, both dates inclusive, unless sooner terminated as hereinafter provided by this Lease. Upon the termination of this Lease or Lessee’s right of possession, whether by lapse of time or otherwise, and subject to Lessee’s option to purchase rights contained herein, Lessee shall deliver immediate possession of the Leased Premises to Lessor and deliver all keys to the Lessor at the Lessor’s principal place of business, or as Lessor otherwise directs.

 

Lessee and Lessor agree that Lessee shall not automatically renew, and all rights of the Lessee shall terminate upon the expiration of this Lease, as stated herein, unless a mutually agreed upon extension is reached prior to it’s expiration.

 

Lessor and Lessee further agree that, at any time during the Term of this Lease, so long as Lessee has committed no default during the said Term, Lessee shall have the option to purchase the leased premises described herein, at a purchase price $_____150,000_________________ (“Option Purchase Price”), subject to the provisions contained herein or the principal balance of the mortgages encumbering the property whichever is lower.

 

Lessor and Lessee agree that in the event that Lessee exercises his purchase option, said real property shall be purchased in its “AS IS” CONDITION WITHOUT ANY REPRESENTATION OR WARRANTY MADE BY OR ON BEHALF OF THE LESSOR. LESSEE FURTHER ACKNOWLEDGES AND REPRESENTS THAT THE LESSEE IS NOT RELYING UPON ANY REPRESENTATIONS OR WARRANTIES IN PURCHASING THE PROPERTY, AND THAT LESSEE IS RELYING SOLELY UPON THE LESSEE’S OWN INSPECTION AND PERSONAL KNOWLEDGE OF THE PROPERTY IN PURCHASING THE PROPERTY IN ITS “AS IS” CONDITION. LESSEE SPECIFICALLY WAIVES THE RIGHT TO RELY UPON ANY REPRESENTATIONS MADE IN ANY STATEMENT PREPARED BY OR ON BEHALF OF THE LESSOR AND PROVIDED TO LESSEE.

 

Lessor and Lessee agree if Lessee does not exercise his purchase option during the above stated Lease Term, or any renewal term thereof, Lessor reserves the right to modify the purchase price.

 

Notwithstanding the above, the Lessee acknowledges that the Lessee must provide the Lessor with at least thirty (30) days notice of his intent to exercise his option to purchase the premises.

 

2. Rental Rate:

Rent shall be $_1200_____ per month (Rental Rate) payable in advance, upon the 1^st day of each calendar month to Lessor or his authorized agent at the following address: _____________________________________ or at such other places as may be designated by Lessor from time to time. Both parties hereby agree that $__400_______ of the monthly rent shall be applied toward Lessee’s Option Purchase Price, provided that Lessee is not in default at any time during the term of this Lease. Upon execution of the Option, Lessor shall provide Lessee with an itemized accounting for the balance of said purchase price, then remaining at the time of the proposed closing, as herein provided. The remaining Option Purchase Price shall be determined and agreed upon by separate instrument at the time Lessee exercises the option to purchase.

 

Rent shall be paid via personal check, certified check or money order. Notwithstanding the foregoing, if a personal check is returned nsf, subsequent payments must be made by verified funds only. (i.e. certified check, money order). Lessee shall be responsible for any charges incurred by Lessor as a result of said nsf check.

 

In the event rent is not paid upon the 10^th day of month, then Lessee agrees to pay a late charge of $25.00, plus $5.00 for every day accruing thereafter.

 

In the event that Rent is not received by Lessor on or before the 15^th day of each calendar month, Lessee shall be in breach of this agreement, which shall constitute a Default of this Agreement, and Lessor may impose any legal remedies available to him in order to protect his legal interests.

 

The Lessor shall grant the lessee 90 days from the date of this agreement to locate and secure a sub-let tenant. The lessee 1^st rent payment is not due until such a sub-let tenant is located during the 90 day period.

 

3. Utilities and Insurance:

Lessee shall be responsible for the payment of all utilities and services, except for water and sewer assessments, and refuse collection which are the responsibility of the Lessor during the term of this lease agreement. Lessor shall also pay any and all Real Property Taxes & Property Insurance. Lessee shall be directly responsible for the cost of all other utilities and/or services to the Leased Premises.

 

Lessor is not an insurer of Lessee’s person or possessions and Lessee will carry such insurance as Lessee deems necessary. Lessee further agrees that Lessor shall not be liable for any damage to Lessee or Lessee’s property or any other person occupying or visiting the leased premises or buildings. In addition, Lessor shall not be liable for theft, loss, damage or destruction of personal property.

 

1. 4. Use of Leased Premises:

The parties agree that the leased premises is to be used by the Lessee solely for residential purposes and for no other purpose without prior written consent of Lessor. The Lessee covenants that he will use the premises in a safe lawful and reasonable manner, and that no nuisance shall be permitted nor shall any waste be committed upon the premises. Lessor further recognizes that the covenant of quiet environment extends to apply to the use of such routes of ingress and egress upon the property of the Lessor. Lessor shall, on the commencement date of the term of this Lease as hereinabove set forth Lessee in quiet possession of the leased premises and shall secure Lessee in the quiet possession thereof against all persons lawfully claiming the same during the entire Lease term and any renewal terms thereof.

 

1. 5. Condition of Premises:

Lessee stipulates that he has examined the premises, including the grounds and all buildings and improvements, and that they are, at the time of this lease, in good order, repair, and a safe, clean, and rentable condition.

 

1. 6. Assignment and Subletting:

Lessee shall have the right to sublet the leased premises at any time during the term of this Lease.

 

Lessee may assign its interest during the term of this Lease upon Lessee’s sole discretion.

 

1. 7. Maintenance, Repairs, Alterations, Improvements and Fixtures:

Lessee, at his sole cost and expense, will keep and maintain the leased premises in good condition and repair including all equipment, appliances and furnishings therein, and shall surrender the same at termination thereof, in as good condition as received. Lessor will not be responsible for repairs to appliances in said premises.

 

Lessee shall be responsible for damages caused by his negligence and that of his family, or invitees or guests. Lessee will be responsible for any and all maintenance to the Leased Premises.

 

Lessee will, at his sole expense, keep and maintain the leased premises and appurtenances in good and sanitary condition and repair during the term of this lease and any renewal thereof. In particular, Lessee shall keep the furnace clean; keep electric bells in order; keep the walks free from dirt and debris; and, at his sole expense, shall make all required repairs to plumbing, range, heating apparatus, and electric and gas fixtures whenever damage thereto shall have resulted from Lessee’s misuse, waste, or neglect or that of his family, invitees or visitors.

 

Lessee shall maintain any surrounding grounds, lawns and shrubbery, and keep the same clear of rubbish and weeds.

 

Lessee shall give Lessor written notice of any repairs required under this Paragraph and Lessee will promptly proceed to make such repairs or cause them to be made.

 

Lessee may alter or improve the leased premises only with the prior written consent of the Lessor to do so, and any and all alterations, additions, improvements and fixtures made or placed in or on said premises shall on expiration or termination of this Lease belong to the Lessor without compensation to the Lessee.

 

Lessee shall not create, participate and/or conduct any excessive noise, music, disorderly conduct, or behavior annoying or disturbing to the neighbors or other tenants.

 

Lessee is responsible for and agrees to pay for any damage done by wind or rain caused by leaving windows open, and by overflow of water or stoppage of waste pipes caused by Lessee or Lessee’ guests.

 

Lessee may not install or permit or allow anyone to install re-keyed locks in or upon the said premises without the written consent of Lessor.

 

Lessor shall not be responsible for any cost related to maintenance and/or repairs to the Leased Premises.

 

1. 8. Animals:

During the term of this Lease, Lessor agrees that Lessee may keep pets on said premises. Lessee will be responsible for any damages resulting for his pets.

1. 9. Entry and Inspection:

Lessee shall permit Lessor or Lessor’s agents to enter the premises at reasonable times and upon reasonable notice (i.e. 24 hour notice) for the purpose of inspecting the premises.

 

1. 10. Possession:

If Lessor is unable to deliver possession of the premises at the commencement hereof, Lessor shall not be liable for any damage caused thereby nor shall this agreement be void or voidable.

 

1. 11. Deposit Funds:

Any returnable deposits shall be refunded as required by law.

 

1. 12. Attorney Fees:

The prevailing party shall be entitled to all costs incurred in connection with any legal action brought by either party to enforce the terms hereof or relating to the demised premises, including reasonable attorneys’ fees.

 

1. 13. Time of Essence:

Time is of essence of this agreement.

1. 14. Default:

If Lessee shall fail to pay rent when due or perform any term hereof, the Lessor, at his option, may terminate all rights of the Lessee hereunder, including but not limited to Lessee’s right to purchase the Leased Premises. If Lessee abandons or vacates the property while in default or payment of rent, Lessor may consider any property left on premises to be abandoned and may dispose of the same in any manner allowed by law. In the event the Lessor reasonably believes that such abandoned property has no value, it may be discarded.

 

In the event of default by Lessee, Lessee shall forfeit all funds expended under this Lease Agreement or any Amendment thereof.

 

1. 15. Surrender by Lessee:

Lessee agrees to and shall, on expiration or sooner termination of the Lease hereof or of any renewal term hereof, promptly surrender and deliver the leased premises to Lessor without demand therefor in good condition, ordinary wear due to usage excepted. Lessee shall surrender his keys to the premises to Lessor to constitute effective surrender of premises.

 

1. 16. Modification:

This Lease constitutes the sole and only agreement of the parties hereto and supersedes any prior understandings or written or oral agreements between the parties respecting the within subject matter. No amendment, modification or alteration of the terms hereof shall be binding unless the same be in writing, dated subsequent to the date hereof, and duly executed by the parties hereto.

 

1. 17. Mortgage and Title:

The Lessor hereby warrants and represents that he is the sole and exclusive owner of the leased premises and has all requisite right, title and power to enter into this Lease Agreement. The Lessor further represents that there are __2__ presently existing mortgages upon the leased premises. The Lessor further represents that they owe _$141,000______ in total unpaid principal balances on __2__existing mortgages. Lessor hereby releases the right to mortgage the Leased Premises. In the event said mortgage payments become delinquent, the Lessee shall have the right to apply a portion of the rental payments hereunder to satisfy the monthly mortgage payments due to the holder of said mortgage.

 

1. 18. Memorandum of Lease:

This Lease Agreement shall not be recorded, but a Memorandum of Lease of even dates herewith describing the leased premises, reciting the term of this Lease and other pertinent information and referring to this Lease may be recorded by either party.

 

1. 19. Lead Based Paint Disclosure:

Every purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning. Lead poisoning in young children may produce permanent neurological damage, including learning disabilities, reduced intelligence quotient, behavioral problems, and impaired memory. Lead poisoning also poses a particular risk to pregnant women. The Lessor of any interest in residential real property is required to provide the Lessee with any information on lead-based paint hazards. A risk assessment or inspection for possible lead-based paint hazards is recommended prior to purchase. Lessee acknowledges receiving all mandatory information concerning the foregoing.

1. 20. Expiration of Option:

This option may be exercised at any time prior to the expiration of this lease agreement, or any renewal term thereof, subject to the 30 day notice requirement contained above. Should Lessee fail to exercise its option 30 days priot to the expiration and/or termination of this Lease Agreement, Lessor shall be released from all obligations hereunder and all of Lessee’s rights hereunder, legal or equitable, shall cease.

 

1. 21. Exercise of Option:

The option shall be executed by mailing or delivering written notice to the Lessor prior to the expiration of this option. Notice, if mailed, shall be by certified mail, postage prepaid, verifiable facsimile or verifiable email to the Lessor. Upon Execution of said option, this Lease Agreement shall be deemed purchase agreement

 

1. 22. Escrow:

Upon Exercise of Lessee’s Option, escrow shall be opened by Lessee at ________________Title Agency (“Title Agency”) or Lessee’s lender, if so required within ten (10) days from the date hereof, such time being agreed to be of the essence.

 

The close of such escrow and the Lessee’s obligation to purchase the Property pursuant to this Agreement are conditioned on the conveyance to Lessee or the Lessee’s nominee of good and marketable title to the Property, as evidenced by a commitment for an Owners Fee Policy of Title Insurance and simultaneous issue issued by Title Agency subject to all restrictions, easements, conditions, reservations, limitations, zoning ordinances, and taxes and assessments, both general and special, not yet due and payable. Marketability of title will be determined in accordance with the title standards approved by the______ State Bar Association.

 

Should any of the conditions specified above fail to occur within three (3) days prior to Closing as provided in this Agreement, Lessee shall have the power, exercisable by the giving by him of written notice to the escrow agent and to Lessor, to cancel such escrow, terminate this Agreement.

 

The real property taxes and assessments, shall not be prorated between Lessor and Lessee.

 

The expenses of closing described in this Article shall be paid in the following manner:

 

(1) The full cost of securing an Owners Fee Policy of Title Insurance, including the simultaneous issue of the mortgage policy shall be paid equally by Lessee and Lessor. The cost of the commitmen, simultaneous issue, and any endorsements required by Lender shall be paid by the Lessee.

(2) The cost of preparing, executing, and acknowledging any deeds or other instruments required to convey title to Lessee or his nominees in the manner described in this Agreement shall be paid by Lessor.

(3) Any costs for title company transfer and recordation of the deed and mortgage shall be paid by Lessee.

(4) Any tax imposed on the conveyance of title to said property to Lessee or his nominee shall be paid by Lessor.

(5) The cost of escrow shall be paid equally by Lessee and Lessor.

(6) The cost of the survey, if required, shall be paid by the Lessee.

(7) The full cost of the title examination, recording of any release and any hold signature fees shall be paid by the Lessor.

 

1. 23. Closing:

Closing shall be within 60 days from exercise of the option unless otherwise agreed upon by the parties.

 

1. 24. Right to Sell:

Lessor warrants to Lessee that Lessor is the legal owner of the leased premises and has the legal right to sell leased premises under the terms and conditions of this agreement.

 

1. 25. Paragraph Headings:

The headings of paragraphs and provisions of this Lease are included only as a matter of convenience and for reference only, and in no way shall be considered as additionally defining, limiting, or describing the scope or intent of this Lease or in any way affecting this Lease.

 

 

1. 26. Notices:

All notices required to be given under this Lease shall be given by certified mail or registered mail, postage prepaid, addressed to the proper party, at the following addresses:

 

To the Lessor: To the Lessee:

___________________________ ________________________

 

___________________________ ________________________

 

The addresses for giving notice may be changed in the same manner as provided for notice hereunder.

 

1. 27. Option Deposit:

Lessee agrees to deposit $_______ by _______201_ to secure the premises. Once the option to purchase is exercised, this option deposit of $____________will be used towards the purchase price at closing. This option deposit is non-refundable. If the lessee fails to exercise their option to buy within _____years by _________201__, the option deposit will be retained by the lessor and no refund will be granted.

 

 

 

IN WITNESS WHEREOF, the undersigned Lessor and Lessee do hereto execute this Lease Agreement as of the day and year first above written.

 

Signed and Acknowledged in the Presence of:

 

 

 

LESSOR:

 

 

 

 

_______________________________________________________________

By: Date

Its:

 

 

 

LESSEES:

 

 

 

 

____________________________________

By: Date:

LEASE OPTION AGREEMENT MEMO

Please fill out all the blanks below.

(All fields are required)

If you are undecided on purchase price, length of lease option term, or monthly lease payment–simply type in “To Be Determined”

First Name
Last Name
, hereafter known as “Seller,” will allow Joe Crump, hereafter known as “Buyer,” to lease option the property at:

Address

City
State
Zip

Purchase price to be: $
(Note: It doesn’t matter much to me what price you put in here…We can probably get you market value, or a little better–however, if you price it too high we may be unable to find a buyer)

Term of Lease Option to be:
(Note: Usually 1-3 years)

Monthly Lease Payment to be: $
paid monthly in advance, starting the day the Tenant moves in. (Note: We should be able to get you market rent or a little higher)

The term of the Lease Option to begin as soon as Buyer acquires a Lease Option Tenant for property.

This Lease Option Agreement Memo will be assigned by Buyer to a new Lease Option Tenant.

Seller has the right to approve new Lease Option Tenant.

Seller may use the Buyer’s Lease Option Agreement forms or may use a form that Seller chooses when Tenant Buyer moves in.

Seller may cancel this agreement at any time if they find their own tenant or decide not to sell. Buyer’s intention is to find a Lease Option Tenant and assign this Lease Option Agreement Memo to that Lease Option Tenant for a fee. Lease Option Tenant will then pay Seller the monthly lease amount until they exercise their option or until they end the option term.

Seller agrees to allow Buyer to put a sign in the yard, advertising the property for sale. If Buyer does not acquire a Lease Option Tenant to assign this deal to within 90 days of acceptance of this Lease Option Agreement Memo, this memo becomes null and void.

Important Disclosure: BUYER IS THE PRINCIPAL IN THIS TRANSACTION AND IS NOT A LICENSED REAL ESTATE AGENT. BUYER DOES NOT REPRESENT ANYONE IN THIS TRANSACTION BUT THEMSELVES.

Seller____________________________________________ Date______________

Seller____________________________________________

Buyer___________________________________________ Date______________

 

Benefits and Risk to Buyers

For many people, a home will be the biggest purchase they ever make. Both buyers and sellers should carefully weigh their options before agreeing to any binding contract. Let’s look at some advantages and disadvantages for buyers:

• Buyers have time to build income and repair their credit history as they rent the house.
• Depending on the agreement, renters can walk away if they find something seriously wrong with the house. Although the renter will lose the option fee and all their rent credit money, that amount will be much less than if the renter had bought the house outright and tried to leave it later.
• Buyers still have to pay the upfront option fee. It’s usually a percentage (usually a 1% to 5 %) of the agreed-upon selling price of the home and is often thousands of dollars. Although this money will go to the down payment should the renter decide to buy the house, it can still be difficult to accumulate that much money before renting.
• If the buyer is just one day late on a month’s rent payment, most agreements void the rent credit for that month. Think about the previous example, where the three-year renter received a $200 rent credit each month. If the buyer paid the rent late just three times each year, at the end of the lease period, the buyer would have $1,800 less for the down payment. The buyer in the rent-to-own agreement must pay on time, every time.
• If the seller fails to pay the original mortgage on the house, it may be foreclosed and the buyer forced to move.
• At the end of the rental period, the buyer still may not be able to buy the home for the same reasons they couldn’t buy at the start of the lease: bad credit, insufficient down payment, not enough income.

All those repairs that used to be somebody else’s problem in a rented apartment often become the responsibility of the new buyer, even during the rental period. Whether it means climbing on a ladder to unclog the gutters or having to pay for a new washing machine when the original Appliances breaks, the renter has to take care of it.

If you’re the seller in a rent-to-own arrangement, the preceding part 1 article discusses the ins and outs of the deal from your perspective.

• If a new potential buyer comes along who wants to purchase the house for a higher price, the seller is out of luck. He entered into a contract with the renter, and he has to abide by it.
• Many sellers use the rent they earn to pay the existing mortgage on their old home, which eases their financial burden. If the renter can’t make payments, few sellers can afford to pay both their old and new mortgages, which could force them into foreclosure.

Because of the many concerns on each side of the rent-to-own transaction, both buyer and seller should obtain the assistance of a real estate attorney (two different attorneys) so that each party is fully aware of its rights and responsibilities [source: University of Tennessee Law School].

The Drawbacks

But there are drawbacks to these deals. You need a good contract and a healthy sense of “buyer understanding .”

Losing your investment: For one, there’s little protection for buyers who fall behind in payments. If you fall behind and are evicted, you lose any up-front fees and rent premiums you paid. One important way to head this off is to work with a mortgage broker before you sign a contract to rent to own so you know what it will take as well as how long it will take for you to qualify for a mortgage so you can close on the property at the end of the option.l

Can’t get a loan: If you still can’t arrange financing at the end of the rental period, you may have to forfeit all the extra cash you’ve invested. The terms for that scenario would need to be spelled out in the contract. In buyers’ markets, you may have the leverage to get a contingency clause specifying any up-front fees and extra rent be returned if you don’t qualify for a loan.

Falling home prices: Buyers may be hesitant to lock into a set price a year in advance considering how much home values are plunging. If the comparables are significantly more attractive when it’s time for your deal to close, you can sometimes renegotiate, but that’s at the seller’s discretion. If renegotiating is impossible, then you have to decide whether it’s cheaper to walk away or go through with the deal.

Foreclosure scams: Some renters have been burned by doing lease-option deals with owners who are going through foreclosures. After months of taking the inflated rent payments even though they are in foreclosure, the owners finally have the home repossessed by the bank and the renters are served with eviction notices and are out their investments.

There have also been instances of foreclosure-prevention scams in which fraudsters take title to homes and do lease-option deals with unsuspecting renters. Instead of applying the initial deposit and the extra rent money to the down payments, the scam artists simply pocket everything and disappear. Because the renters don’t get a title to the property until they close the bank loan, they are again out their investments.

Walk aways: Pitfalls exist for sellers as well. Renters may decide to not exercise their options if prices fall. That can leave sellers with large paper losses by the end of the lease compared with if they had sold the home when they originally planned. They are also stuck carrying the costs of the home until they find other buyers or tenants.

Affordability

Most importantly, however, buyers must be cautious about entering into a deal that’s unaffordable. The payment can seem manageable when you’re just looking at the monthly “rent” payment. But there are more expenses than that.

First, the mortgage payment on a $200,000 home after paying $20,000 down, comes to more than $1,000 a month at the current very low interest rates, which are only available to borrowers with the best credit.

One way to head all this off is to work with someone who you can trust. We at Hawk-i REI have several years of Real Estate investing and always ALWAYS work for a win win for all concerned. The roll we usually play in a Rent to Own is to find a seller who needs to sell ASAP but has not been able to sell for what ever reason. Because we have contact for potential buyers we do a contract with the seller where we offer to buy the house. We then find a buyer and when we dofind the right buyer we assign our contract to the buyer and we all (seller, buyer and us) work out a Rent to own (Lease Option purchase contract) with terms that both the seller and buyers can live with. In our negotiations with the buyer the option fee comes to us when we assign the contract.

The buyer in addition to the upfront option fee will be expected to pay the first months rent. At this point it becomes the responsibility of the buyer during the option period to carry out the terms outlined in the original option purchase agreement.

If you need more information on how we as Hawk-I REI can assist you in understanding how a Rent to Own works please contact us at info@wholesaledealsforu.com

 

You’ve just bought the home of your dreams, signed the contract and packed the moving van — you’re all set, right? Not if you haven’t sold your currant home first. So you put it on the market and you wait. And wait. And wait. In many cities where it makes more financial sense to rent than own, buyers may simply not be interested. In others, buyers do come along, but they don’t have enough money saved for a down payment or their credit isn’t good enough. How will you ever sell this house?

For many, the rent-to-own home may be the best option. Also called a lease-to-own house, the process works similarly to a car lease : Renters pay a certain amount each month to live in the house, and at the end of a set period — generally within three years — they have the option to buy the house. Each month of rent they pay is income for the seller, while a portion of it goes toward a down payment to eventually buy the house.

Both renters and sellers need to be very clear about the contract they draw up before they agree to this arrangement. Renting-to-own has advantages and disadvantages for both parties. Sellers who have already bought a new house will have relief from paying two mortgages at once, and in a slow housing market with many homes for sale, this may be their best option. Buyers who can’t yet afford a house may be able to get one more quickly.

Process Involved in Rent-to-own Homes

Your house has been up for sale for months, and you can no longer afford to make mortgage paymentson both your old and new homes. You’re desperate to sell but don’t want to lose money. Now may be time to consider making your old home a rent-to-own property.

Before entering into an agreement, sellers have to decide the sale price and rent they’ll charge for the house. Both amounts are subject to negotiation, just as a regular sale would be. But sellers and buyers need to remember that once they sign an agreement, the sale price of the house is locked in until the end of their rental term, between one and three years. Even if other housing prices rise or fall during that time, the original agreed-upon price is final.

Renters also have to pay an option fee and then a rent premium. The option fee is a set amount that the renter pays the seller. If, at the end of the lease period, the renter buys the house, the option fee becomes part of the down payment. If the renter doesn’t buy the house, the option fee becomes income for the seller and is not refundable. Rent premiums are an amount slightly above the typical rent, with a portion of that money going toward a down payment.

Here’s a typical example: The house is worth $200,000, and typical rent would be $1,000 a month. Someone who’s renting to own might pay $1,200 a month in rent and then receive a $200 rent credit each month. Add the option fee, in this case $5,000. On a three-year lease, the renter would earn $7,200 in rent credits. Adding the earned rental credits to the option fee, the renter has accumulated $12,200 for a down payment. Which will come off of the agreed upon purchase price of the property.

This is a valuable alternative for buyers who otherwise wouldn’t have the credit score or money saved to acquire their own home. And the sellers, eager to relieve themselves of the burden of the old home, earn this money whether or not the house sells once the leasing period expires. If, at the end of the contract the renter can’t or chooses not to buy the house, the seller keeps all the money.

As with any business contract, there are mutual risks and disadvantages involved for both parties. What if someone else wants to purchase the house for a higher price than originally negotiated? Who’s responsible for fixing the leaky roof in the middle of the night? Read on to discover the advantages and disadvantages for each side.

What’s in a Name?

There used to be a distinction between a lease-option arrangement and a lease-purchase deal. Lease-option meant that at the end of the term, renters didn’t have to buy the house. They were contractually obligated to buy it in a lease-purchase deal — whether or not they could afford it. People now use the terms interchangeably, so be clear on exactly which contract you’re entering into [source: McLinden].

Risks and Benefits to Sellers

Here are some pros and cons sellers can expect in a rent-to-own contract:

• If home values are falling, sellers can lock in a higher price at the start of the agreement.
• Renters who are looking to own generally treat their living space and community better. They’re planning for their future, instead of living in a place they’ll vacate in a year or so.
• If a renter does back out at the end of the agreement, the seller still has the option fee and rent premiums as income. However, the seller is back to square one, which may be difficult for some homeowners who just want to be free of their old house.
• If a new potential buyer comes along who wants to purchase the house for a higher price, the seller is out of luck. He entered into a contract with the renter, and he has to abide by it.
• Many sellers use the rent they earn to pay the existing mortgage on their old home, which eases their financial burden. If the renter can’t make payments, few sellers can afford to pay both their old and new mortgages, which could force them into foreclosure.

Because of the many concerns on each side of the rent-to-own transaction, both buyer and seller should obtain the assistance of a real estate attorney (two different attorneys) so that each party is fully aware of its rights and responsibilities [source: University of Tennessee Law School].

This is a continuation of my last article where we talked about, “is now the last part of 2011 a good time to invest in Real Estate”. We gave you some sound reasons as to why it is if you are investing in the right market an if you are using the right strategies. This article as well as several others will be dedicated to giving you some ideal of the right strategies as well as how to identify the right market. We will begin by explaining what is wholesaling.

Over the years I have studied different guru’s programs and had mentors as well as several years of experiences. What I am bringing to you comes from my experience as well as as from my favorite mentor Josh Cantwell.

What is a Wholesaler

A wholesaler is an investor that buys properties at a discount and who sells these properties quickly to another investor. (usually rehabber or landlord) with the idea of making a profit from either an assignment fee or the spread between the price they paid and the price they receive for a particular property.

Most beginners wholesalers learn the business by assigning contracts to an end buyer for a small fee. One of the main advantages to this method is that one takes on less risk because the wholesaler is not going to buy and hold the property. That in turn allows the new wholesaler to focus on acquiring leads, finding buyers and getting contracts.

A wholesaler’s profit is usually smaller in comparison to the profit made by the investor who buys from a wholesaler and makes needed repairs to resell or rent. Basically what we are saying is one get paid for the amount of risk they are willing to take. Less risk the less the return. The more risk the more potential of a greater return but as stated the greater the possibility of a loss.

Wholesaling Benefits

* Limited amount of cash needed to get started—*Limited risk exposure since a wholesaler ultimate goal is to sell to another investor —’*The ability to make a quick sale to a buyer—*No tenant issues—*No contractor issues—*No credit needed

Wholesaling Disadvantages

*Fewer tax advantages—*The amount of profit generally smaller—*No long term wealth building residual income or equity accumulation

Wholesaling Rules

Find buyers first, (landlords, other investors, mortgage brokers, etc). Identify what kinds of properties interest them as well as location and other particulars. One you find a property they have ask for sell it for an assignment fee.

Wholesaling FSBOs calls for marketing to lists, signs and other marketing initiatives. It also requires the use of an assignment contract where you as the wholesaler get a fee for assigning contract to them. Wholesaling REOs requires the REO listing agent with properties in your sweet spot and they require a back to back to closing.

In our next article (part 2) we will take up the basic steps.

 

So I’m sorry to be the bearer of bad news today, but there’s some data I have in my hands that I must reveal to you. Read this carefully please.

*Short Sale flips are tougher to do than ever. There simply aren’t enough people who can get bank loans to “cash you out” once you get your short sale approval from the bank. Plus title companies are very strict on disclosing back to back flips to both the “A” and “C” lenders. Anyone who’s an active short sale flipper knows this is getting tougher to do.

*Rehab flips are tougher to do than ever. Title problems and “robo-signing” scandals have tainted the title to many properties and caused uncertainty about the quality of title when buying an REO.

*11 million home owners have no equity according to CoreLogic.

*Another 16 million have very little equity. They are 90% – 100% leveraged.

*Buyers must have a 700+ credit score on average to qualify for a FHA loan plus a down payment. This means there are less buyer’s to “cash you out” using FHA loans.

*80 -100 million people – roughly 30% of our entire population cannot qualify for a traditional bank loan. Cool thing is there’s a “golden opportunity” that’s been created because of tighter bank lending standards.

*Credit is expected to tighten further in the 2nd half of 2011, not loosen, according to Inside Mortgage Finance magazine. Tight credit just means you have to invest in strategies that require no credit. Easy as that.

*Most leads that you will generate into your real estate business will be houses with little or no equity. So if you are an “equity” wholesaler you will have trouble getting “equity” leads in 2011. My prediction is that this is just 5% of the deals I’ll do in 2011. Cool part about this is there’s a bunch of “low hanging fruit” leads that are easy to find and lock down.

*The FHA short refi program has helped very few people. Just ask the FHA. They will confirm.

*52% of all HAMP loan modifications “fall out” within 6 months. Just ask Obama. He knows.

So where are the investment opportunities right now? What can you do about this and still be a successful investor in 2011?

My answer: Go where the money is and diversify into strategies that do not require banks at all. Strategies that are working now

I’m so excited to share this opportunity with you that I set have aside time to bring the strategies (4) that are working in out tight Real Estate economy now.

*There are 4 simple, fast, safe and easy ways for you to make money that don’t require any banks whatsoever.

*You can profit from every type of property. Houses with equity, houses with no equity and no default (which are most common) and overleveraged houses in foreclosure (short sales).

*The investment strategies are proven. My mentor and his students and I have been using these strategies since 2004. Just now in late 2011 are they really going to “blast off” for you and me because of the current state of the financial markets.

*You get paid within 60 days. Often in as little as 16 days. No waiting for 7 months to get a short sale approved and flipped or a house rehabbed and sold.

*You get paid between $500 to $20,000 up front.

*There is one set of paperwork you use to execute all 4 techniques.

*With one of these techniques there are three ways to make money. You can make some cash now (between $500 to $20,000), cash flow each month (between $100 to $1,000) and then cash out down the road (between $7,000 and $40,000) without ever owning the home.

*These leads are everywhere and require little to no marketing costs on your part to obtain. As I said earlier, they are the most common lead type I get into my business. In fact, in the past, I used to throw these away. Not anymore.

*This is the easiest, fastest way to make money in real estate with no money, weak credit, and no loans for you or your buyers.

So position yourself and your business for success without any banks, FHA loans, private money or government programs using the 4 strategies I will be bringing to you over the next few weeks in my blog articles here.

Live Free of Banks,

JD

P.S. I personally think the jokers in Washington, Wall Street, Fannie Mae, Freddie Mac and FHA are not all bad guys. They just are in over their heads with all this “debt crisis” talk.

A recent Fannie Mae study showed 54% of the people surveyed want to buy a home in 2011. They realize there are lower prices than ever out there. Problem is with the current Fannie and Freddie and FHA guidelines they simply won’t qualify. So how are you going to use this to your advantage?

I’ll show you.

In my last blog I mentioned how my first interest in Real Estate was started (when my dad started buying land in Southern Missouri). I knew I needed to start identifying resources to learn more about Real Estate investing. Mean while I was living in Tucumcari New Mexico and was the Direct of Counseling and Coaching Football and Track and living in an apartment. I borrowed a book from a friend called “No Money down Real Estate”, I believe it was written by a man with the last name of Allen. Every night I would read and learn what I could. Being new to these concepts however I had a hard time understanding most of what the author was talking about. But I forged on. This was in 1985 that I was studying this book. A lot of the concepts were somewhat unbelievable for me but who was I to question this author who was talking from experience.

In 1986 I had received a call from a person who had been following me from a professional perspective. He was offering me a job in another state and one I felt I could not turn down. It was a position with Illinois State University as a faculty associate in their College of Education. Once I excepted the job and moved (From Tucumcari New Mexico to Normal Illinois was a long trip) I was in culture for a while. In addition to that they wanted me to start work toward a Doctors degree in my chosen field of Psychology.

One day about a year later I was living in my apartment and both of my twin daughters had just gotten married and I was living and going through the empty next syndrome. I was stressed over that as well as my Doctoral program studies and I just happen to be setting in my library and noticed the book I had borrowed from my friend on Investing in No money down Real Estate. I begin to read it again and it seemed much clearer now and was just what I needed to get me out of the corner I was feeling I was in. Don’t get me wrong my job at the University was challenging but was beyond what I ever thought I would professionally have. It was sweet. But I could see I needed something outside of work at the University.

So I started to put together a plan to purchase a piece of Real Estate using the Nothing down plan. I begin to look around and I finally found a property that had a tenant but looked like it was vacant. I talked to the Landlord and he was wanting out and was willing to finance but wanted 10% down. No way I could come up with 10% because I had just forked out a lot of money for the Twins marriages. So I ran some creative ideas by him to cover the 10% he wanted but he was not going for it. So I told him I could not come up with the 10%.

We both agreed his property needed a lot of repairs all which were things I had the skills to do such as clean the our side up (curb appeal) and paint the exterior as well as the interior. I suggested maybe I could do all the work of cleaning up the property and that would come to enough to cover the 10%. But no he wanted the 10%. So I walked away.

In a few days I get a call from him wanting to know if I would be interested in fixing his front porch of the rental we had talked about earlier. The tenant was setting on the porch one night and almost fell through when one of the boards cracked from rote. So I said sure I can come over and give him an estimate and then do the repairs. He thought my estimate was to much so he said no. A few days he called and wanted me to go ahead do the repairs because my estimate seemed to be the best he could get. I told him I had changed my mine but maybe we could work out something else if he would drop the 10%. I again offed to do the fixing up of the property for what amounted to be near the 10% he was wanting for the deal. I begin to see he was a tired landlord and wanted out. So I offered him an option of $100 (which would go toward the purchase) to buy the property sometime with in a year for the amount we had agreed on. I would do all the labor of fixing the property, him pay for materials and when I was finished I could exercise my option and purchase the property with nothing down.

And that was my first nothing down deal. Just good old sweat equity.

Stayed tuned for the Phase 2 of my Real Estate Education and growth

My interest in Real Estate first begin in the early seventies when my father (a farmer by trade) decided he was tired of Dairy Farming. He begin to sell the old farm place where we (1 sister and 3 of us brothers) grew up. He mainly decided to sell because none of his kids wanted any part of the farm and had moved on to other professions. He was getting older and somewhat broke down because of the hard years of making a living on the farm. He would need to use what he got from the proceeds of selling the farm to support mom and him to live out the rest of their lives.

The only way he could get what he thought the farm was worth was to offer good terms (seller financing) . He was able to get a better price per acre by offering it for sale with so much down and some much a quarter until paid off or a by a balloon payment . He was able to sell part of his farm right off the bat and things looked good. With it father had more money at his finger tips than he had ever had at any one point in his life. So he begin to look at ways to invest some of that money.

This all took place in southwest Missouri near the edge of the Ozark Mountains. Their was lots of rolling hills (Mountains as we referred to them) covered in large Oak trees. So he decided to buy one of the local places at what them seemed like a lot of money ($15 an acre). So as the buyer of his farm made their payment if he had more than the needed to live on (with a little reserve) he would buy more wooded land. As time went on he begin to realize that maybe he could buy the land cheap and sell for as few dollars more and them really get ahead. One day he found this big section of woodland that he thought was a great opportunity. He had enough to make the down payment required but not enough to make all the regular payments. So he called each of us kids and ask if he was not able to make the required payments would each of us help out, at least for awhile . He thought it would maybe take 2 to three years and then where he had financed a piece of the farm he would receive enough to pay it off. We all agreed with not much thought about what it may cost for each of us in the beginning. For me it was around $75 a month and for me at that point as a teacher and coach it turned out to stretch my budget. I begin to receive pressure from my spouse because of this extra burden. So as a result I thought I better check out a little more about what I had committed to. And that is how I first begin to get interested in Real Estate.

Return to my next Blog to see the next step to the rest of the story!!!!