30 year lease with 30 year option??? - Posted by marie texas

Real Estate Investing Real Estate Law
1

Posted by Tom-FL on March 05, 2004 at 22:11:18:

Sorry I’m too fogged to even research it right now, but the general feeling is that it’s a sale, not a lease option.

Telltale signs it’s a sale?

  1. Longer than a few years.
  2. Too high rent credit toward purchase.
  3. Increasing rent credits (follows amortization)

I’ll send some links if I see anything “official”.

Also look in the archives, it’s been talked to death here.

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30 year lease with 30 year option??? - Posted by marie texas

Posted by marie texas on March 05, 2004 at 20:13:36:

Five years ago I did a 2 year Lease / Option on a property in Louisiana. Option consideration was $5,000. Two years later, I renewed the lease and option for two more years and collected $2,500 option fee.

A year ago the lease and option expired and the couple is still in the house making all payments on time. They have added a deck, above ground pool, $3,000.00 in privacy fencing. They’ve also changed out the flooring and painted inside and out.

They still cannot qualify for a loan. They take excellent care of the property and have never been late on a payment in five years. They want a 30 year lease with a 30 year option. With $750 of the $900 rent going towards the purchase as shown on an ammortization table.

Is this legal? Is this a “good” situation for me as an investor and for them as potential homebuyers? Could my mortgage lender view this arrangement as a “sale”? What would happen in case either party filed bankruptcy (30 years is a long time!)

Thanking you all in advance for your input!

Marie (Texas)

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Re: 30 year lease with 30 year option??? - Posted by Frank Chin

Posted by Frank Chin on March 06, 2004 at 11:07:01:

Marie:

Is there a conventional mortgage on this property?? Most conventional mortgages prohibit owners giving leases exceeding three years.

Even if this in not the case, they tied you up for 30 years. The tenant would then have you over a barrel.

How??

Thirty years is a long time, and by then you may want to move out of the area and retire. You can’t sell the place with a 30 year lease, and if you ask them to terminate the lease, and what if their counteroffer is they get 50% FMV.

You’re in the driver seat now. Just renew every two years, and if they squawk, its out the door and they lose their improvements.

Give them a 30 year lease, and they’re in the drivers seat. You lost the house.

Frank Chin