Lease option success strategies
Don't miss the latest articles, products, offers, and events. Subscribe today and get four free bonus gifts! How to Create Your Own LLC and Family Limited Partnership. Bill Bronchick Products 9. Sure, you can always sue the seller to force him to sell you the property, but this can cost you thousands of dollars in legal fees and take years to accomplish.
You need to be in a better position if you want your investment to be protected. Here are three good ways to protect your option: If your option was signed before a notary, you can record your option in the public real estate records. This will give the world public notice of your interest.
If the option was not notarized, you can sign an affidavit called a "memorandum of option" and file it in the real estate records where the property sits.
Keep in mind that this does not create a lien, it only creates a "cloud" on the title. If your seller has died or disappeared, you will have a big problem getting him to sign a deed. An escrow should be created up front in which a title company or attorney holds an executed deed. When you are ready to exercise, you simply tender the money to the escrow agent and collect the deed. Typically a mortgage is recorded to securepayments on a promissory note. A mortgage can be recorded to secure performance of any agreement, even a purchase option.
You as optionee buyer will now be a lienholder, in the same position as a secured lender. If the seller refuses to sell the property, you foreclose. Now the seller has to go to court to protect himself, rather than the other way around. Sometimes, they fight the eviction and go into court kicking and screaming, "I HAVE AN EQUITABLE INTEREST IN THE PROPERTY. This may require you to foreclose the tenant, not just evict him.
Here are some tips for avoiding the equitable mortgage: Give your tenant a lease and a separate option agreement. Make certain the lease does not refer to the option. Keep Your Term Short. If the tenant insists on three years, give him a one year with 2 rights to renew. Draw up a brand new lease and option agreement each time he renews.
If you give a cumulative rent credit, raise the purchase price each time.
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Take a Security Deposit. Sellers don't take security deposits, landlords do. Pay the Taxes and Insurance. Do not let the tenant pay the taxes and insurance.
This makes it look like a sale. Don't Give Large Rent Credits. The more "equity" the tenant has, the more likely a judge will favor an equitable mortgage. Refrain from using the words "credit," "seller" and "buyer" in your agreements. Instead, use the words "non-refundable option," "landlord" and "tenant. If you held the option more than a year, you may qualify for capital gains treatment. Instead of selling the property, sell your option and let your subtenant exercise it directly from the owner.
Take A Loss On Your Personal Residence As you may know, you cannot write off a loss on the sale of your personal residence. William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Bronchick has been practicing law and real estate since , having been involved in over transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch.
He has been featured in Who's Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since Copyright All Rights Reserved. Published with Permission of Author. Send This to Friend. Apartment Investing - Investors Now Is the Perfect Time! Are Real Estate Seminars Worth the Money? Are You a Newbie at a Real Estate Club?
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