I get at least six to eight calls a week offering to sell me a lease option.  First of all I buy real estate secured notes not pie in the sky hoped for deals.  That may sound harsh but a lease option is NOT a real estate secured note, mortgage or contract.

          Lease Options may look like a solution for everyone at the time but more often than not they turn into huge disasters.  They sound simple enough but in fact a lease option is much more complex than a straight purchase.  In addition to the sales price other factors must be negotiated including but not limited to: rent credits, repairs, taxes, option consideration, closing costs, future depreciation/appreciation, terms, option extensions, appraised value, just to name a few potential flies in the ointment.

          Sellers and even real estate agents have almost no understanding of the mechanics of writing an effective lease option.  I can't imagine any third party, such as myself, wanting to step into the potential nightmare that most lease options are guaranteed to cause. 

          Real estate agents often will as a last ditch effort recommend a lease option, if all other typical sale methods have failed.  The agent knows that he will be able to pocket something with a lease option transaction versus NO money if he ends up with an expired listing. 

          Buyers that are interested in Lease Options are interested in such transactions because they can't get a loan due to no money and/or bad credit.  Not exactly the type of buyer prospect that a seller should be looking for and certainly not the type of buyer that an investor is looking for.  What happens in a year, or two the buyers still can't get financing and they still have lousy credit and no savings.  In such cases these buyers will then press the seller to lower the price, carry financing or extend the option.  None of these things make sense to me to even consider becoming involved in.

          Lastly, MOST sellers who proceed with Lease Option agreements know that their property is overpriced.  Furthermore such sellers know that such transactions will rarely close. As a matter of fact most count on it and relish the idea of taking the property back keeping the lease option money and moving on to the next "buyer". The only real benefit to the lease option is to the seller/landlord in that it is a good way for the landlord to find tenants who will take better than average care of a property and will usually pay the rent on time in the hopes that their circumstances will get better and that the house might become their property.

          So, in the end what do we have?  Well unfortunately for most concerned we have a deal that falls through.  The buyer is unqualified and the property is overpriced, a recipe for heartbreak. 

          I suggest that if you have a chance to buy a house on lease option that you walk the other way.  The truth of the matter is that lease options rarely make sense to investors, sellers or buyers.

Until next time

Darlene