Posted by JohnBoy on May 02, 2004 at 22:36:59:
The lease should not saying anything at all pertaining to an option agreement. Only the option agreement should say that in the event the optionee has any lease agreement on the property and defaults the option is void.
The purpose of having a separate lease and option agreement is to keep the two completely separated from one another. Never state anything about an option in the lease agreement.
Giving a $1k per month in rent credit is way to much. A lender wouldn’t allow that to be used as down payment anyway. Lenders will only allow anything paid above FMV rents to applied as down payment money.
I wouldn’t give more than $200 as rent credit.
The option money and any rent credits should go towards the purchase price only. So if the purchase price is $200k and they paid $10k as option money and rent credit credits the balance due is $190k.
How the lender decides to treat the option money and rent credits is between them and the borrower. Don’t concern yourself with that. It’s not your problem. You don’t want to get into using words in the contracts that could reclassify the lease and option as a sale. That could cause you bigger problems if the tenant defaults and ends up in court over it.
I would recommend getting Bill Bronchick’s course on lease options before doing anything you don’t fully understand. It can save you thousands in making a mistake.
Seller Protections in a Lease-Option - Posted by R. Gardner
Posted by R. Gardner on May 02, 2004 at 09:02:43:
I own a single family investment house that I want to sell through a lease with option to purchase. Fair market value (FMV) of rent for the property is about $1400 per month, but rental market is somewhat slow. In order to either get the property sold or receive FMV for the rent, I can afford to lease it out for 12 months at FMV and credit $1000 per month against the sale price that we agree upon. The legal paperwork that I am considering using (at this time) is 1) a standard lease that identifies a separate Option to Purchase Agreement and also designates that certain deposits and a certain percentage of rents will be credited against the sale price specified in the Option to Purchase; and 2) a short Option to Purchase Agreement that specifies option fee, sales price, option period and says that a Sales Contract will be completed at the time Buyer decides to exercise the option. I want to be sure that I am protected with regard to the way that the $12000 and other deposits are credited against the sale price of the house but am not quite sure how to do this. For example, if when we complete the Sales Contract the $12000 were to be represented as ?earnest money? ? then the Buyer could possibly claim it back if the sale falls through because he cannot get financing; in this case, I would have effectively rented the house for $400 per month ? WAY BELOW FMV. So, do I just get the Title Company to list it as a ?down payment? at time of closing: Contract Sale Price = $200,000; Buyer?s Loan Amount = $ 188,000; Buyer?s down payment =$12,000. Either scenario looks to me like it has potential for me to be ?taxed twice? on the same money ? first as ?rent received? then as part of ?capital gains on the sale.? However, if I simply knock the credits off of the Sales Price, then the lender potentially may require the Buyer to come up with an additional ?down payment? that he would not be expecting in order to obtain financing. I would appreciate any insights that you may have on the right way to approach this; or recommendations for good references I can consult.