Frequently Asked Questions

Q: I've had credit problems - a bankruptcy about a year ago - but would like to get my family out of our apartment and into a house. How could a lease option help?

A: Most lenders will want to see a clean credit record for 2 years after a bankruptcy. A Lease Option is a perfect way to have the benefits of home ownership while giving you the needed time to clean up your credit.

Q: Does rent credit apply to the down payment or simply lower the purchase price?

A: The majority of lenders will only give a rent credit towards a down payment for an amount that is greater than the normal rent.

For example; if the rent credit is $400 per month, the normal rent is $1,000 per month and a tenant/buyer is paying $1,200 the lender will only credit $200 per month towards the down payment.

However, large rent credits can be applied towards the purchase price. For example: if a tenant/buyer was paying $1,200 with 50% of the rent credited towards the purchase price, $600 per month could be credited to lower the sale price. The tenant/buyer needs to be aware that they would still need a down payment. (There are many loans out there that only require a 3% down payment. Also, creative seller financing terms that would apply at the end of the lease can be written into the lease option agreement.)

Using the above example with a 50% rent credit; some lenders might allow $200 per month to apply to the down payment and the remaining $400 per month could apply to lower the purchase price. It's good to check with several lenders or a good mortgage broker to see their policies. An arrangement of this type would allow a tenant/buyer to build equity much faster than if they had bought the property and were paying down a mortgage. This same situation could also benefit the landlord/seller by having a tenant/buyer who would be more committed to living up to the terms of the agreement.

Contracts should be written so that any rent credit applies to the purchase price and it is clear that the tenant/buyer is aware of this.
FREE Sample of how to do it right with the proper contracts.

Q: How long do most lease options last?

A: It's completely negotiable. Most are from 1 to 3 years. If you are the tenant/buyer or investor, you want as long a term as possible. If you are the landlord/seller, a one year term is good and you can negotiate terms for any extension beyond that.

Q: As a landlord how will a lease option help me get paid on time?

A: Our contracts make sure that the rent is paid on time by having the tenant/buyer forfeit the month's rent credit if the rent is paid late.

Q: As a real estate agent how can lease options help me in my business? And how would I get my commission?

A: Always keep a lease option in mind as a possible way to move a hard to sell property. It can also be a great tool when the real estate market slows down. If you have a listing that is nearing expiration, suggest it to the homeowner as a possible solution.

Most agents focus on getting a commission check to the point that they will let a listing expire and miss out completely. They should focus on how to make a transaction work. (For regular sales where a buyer is having trouble coming up with enough cash for a down payment, they could finance their commission by taking a note and receiving payments)

With a lease option the agent normally receives a portion of their commission at the time the lease option is written up. This could be paid out of the non-refundable option consideration the tenant/buyer has paid. The remainder of the commission would be paid when the sale occurs. It should be written up in the lease option agreement.
FREE Sample of how to do it right with the proper contracts.

Q: I've been transferred out of town and need to sell my home quickly. I hate to leave the house vacant. Can this help?

A: A Lease Option is perfect! The main object is to get someone in the house that you trust and to stop the monthly loss that is happening when you make your mortgage payment. You could do this with a lease option in 30 days. (many insurance companies do not like for a house to be vacant for more than 30 days)

If it is a hot real estate market and you price the house fairly, you could list it with an agent and it would probably sell fairly quickly. In normal or slow markets, it's more of a gamble to list with an agent. You'll have a monthly loss while waiting… and have closing costs and commissions to pay when a sale does happen.

Compare this with receiving 2% to 5% up front in cash, top rents paid on time that should pay your mortgage payment and give you a positive cash flow, a 5% to 7% savings in commissions, no closing costs (using our contracts) and a top sales price.

Q: I'm a new real estate investor and would like to focus on making some quick cash. What's the best way to go with a lease option?

A: By calling on homes for sale and for rent and running our proven ads you should be able to locate lease option prospects. Then you can negotiate a lease option with good terms… and… you have just created something of value. There are always people wanting to get into a home who don't know how to go about it. If your contract is worded properly you will have the right to assign (sell) the contract to the new tenant/buyer for a fee. This fee would normally run from $1,000 to $5,000 or possibly more, depending on how good a deal you had landed and the housing prices in your marketplace.

Often you can do this with the homeowner's co-operation by acting as a middleman. Since you have the property under contract you are acting as a principle in the transaction and avoid the problems of acting as an unlicensed agent. FREE Sample of how to do it right with the proper contracts.

Q: I have only owned my house a few years and have very little equity. I need to sell but real estate agents aren't interested in listing my home because there won't be enough money after the mortgage is paid off to pay their commissions. Can a lease option help?

A: Most tenant/buyers are mainly interested in getting some control of their housing situation and not throwing rent away. By offering the great terms of a lease option you should be able to create additional equity by asking a premium price.

For example; if you had owed $96,000 and the identical house down the street recently sold for $102,000, there wouldn't be enough equity to pay a real estate agent's commissions of $6,120 and approximately $1,200 in closing costs.

By utilizing a lease option you could ask $105,000 on a one year lease option. You could probably get $3,000 in non-refundable cash up front as option consideration. Our contracts for Seller/Landlords have the Tenant/Buyers paying the closing cost. If your mortgage payment, taxes and insurance came to $800 per month and that is about what the going rent would be you could ask at least $950 per month and give a $300 rent credit towards the purchase price. Let's look at the numbers:

So you could quickly fill your house and avoid any negative cash flow. You would have $3,000 in cash to start. $150 per month would come in as positive cash flow and $4,200 coming for the balance at the end of one year. This $4,200 would give you enough of a cushion to try to receive more in option consideration. Or give you the ability to negotiate terms such as lower the purchase price, split the closing costs with the buyer, give a larger monthly rent credit or an 18 month term to make the property more appealing.

Compare this with having pay the mortgage payment every month while waiting for a sale and then having to dig into your pocket to cover commissions and closing costs to sell using an agent.
FREE Sample of how to do it right with the proper contracts.

Q: The house I'm selling has been my principle residence for many years. If I sell using a lease option will it affect my ability to take advantage of being able to avoid taxes on up to $250,000 in profits from the sale?

A: We hate to answer tax questions, but as we understand it: If you have used the home as your primary residence for 2 full years, you can rent or lease option the property for up to 3 years and still be able to avoid the tax. If you have been married and your spouse has lived in the house for the last 2 years you can each avoid $250,000 in taxes on gains. The rule is that you have lived in the house for 2 of the last 5 years. Of course you should consult your tax person for details.

Q: I can get a lease option contract at the local stationary store. Why should I use yours?

A: The generic contracts you find at stationary stores are very basic and are intended to be used by both tenant/buyers and seller/landlords.

Our contracts were written by an attorney who has done dozens of lease options in California and around the country. California tends to have the toughest real estate laws in the nation. Each contract is designed specifically for the tenant/buyer or the seller/landlord. They are very thorough and give you the advantage depending on which end of the transaction you are on.

Due to the cost effectiveness of doing business over the internet, our downloadable products are comparable in price to what you would pay in a stationary store and we provide detailed information on how to structure a favorable lease option for your particular situation.

Or if you prefer convenience, we offer hard copy info and contracts which come in ready to use 3 part NCR (no carbon required). We send three copies of each contract. They are quickly shipped with no extra shipping cost by First Class Mail, or we can send them by Priority Mail or Overnight them to you for an additional fee.
See our Products page to order.