Lease Option / purchase

The IRS Code treats differently business rental payments and payments made pursuant to a purchase of depreciable business property. The lessee may deduct rent as a business expense under Section 23(a)(1).

(A)1 - But this section forbids deduction when the taxpayer is "taking title" or has "equity" in the property. Instead he usually may depreciate the property. On the other hand , the lessor reports rent as ordinary income and he may take depreciation deductions. If payments received as part of a "sale or exchange" of his property, i.e. lease purchase/lease option, but his "gain" may be taxable at the lower capital gains rates under Section 117(j).

Courts are forced to apply the Codes rent-purchase distinctions to contracts which use "lease" form and terminology but give the lessee an option to buy.

Hope that helps.

The seller would certainly owe gains when the option was exercised. It's just a sale at that point.

1) Know the landlord-tenant law for your state

2) Record the option agreement for public record

3) Escrow the deed with an escrow or title company

4) Keep the lease agreement and the option agreement as two separate
documents.

5) Keep the terms relatively short - two years is good.

6) Take a refundable security deposit (a small amount so that the tenant can

still afford the nonrefundable option consideration ~ $50 fulfills the
letter of the law)

7) Seller pays all property taxes and insurance (structure only) on the

property

Don't accept unusually large monthly option payments (half the rent is OK)

Watch contract language

Example of Right Way: landlord/tenant, nonrefundable option

consideration

Example of Wrong Way: buyer/seller, credit toward down payment

Thank you for the guidelines, zeekjones. Very helpful! I'll keep a copy for when I need them.

Rina

Hi, Do you know what the buyer usually asks for money wise for a down pymt when doing a lease purchase and what is a comparible form to look for from deans site, so that i know what to look for. I know beside your name it should read assigns or assignees, anything else that i don't know about. Is 3 to 5% about right or should it be alot less than that? I am meeting with the owner/builder at 3 today can someone help me before i take the plunge. I am alittle nervous. This home is a spec home and the builder has many to choose from. They are all brand new homes and never been lived in. Cindy

Cindy,
The owner will usually ask anywhere between $1000 and $4000 up front depending on the market.

Okay Thank you so much that's what i thought. Now should i look for re assigns on their purchase agreement next to where my name would go? what if it doesn't say that? Cindy

Cindy,
Are you trying to re assign a lease option?

cindy you know the rules: CLASS IN SESSION: unless you are planning on RE-ASSIGNING the property thier would be no point in writing AND OR ASSIGNS, where you would sign your name, as for FORMS go to the FORMS & DOCS on the left side of the web site and print the LEASE OPTION form. CLASS DISMISSED,SULLY.

Okay tiger why not write re assign or assigns. I was told to do that, now darned if i aint confuuuuuuuuuuuuuused. yes i would be planning on assigning it to someone else. You don't think i am going to take on two mortgages at one time. Come on tiger. Yes i certainly know where the forms and docs are but i like someone elses form better. It is much more safer and has alot of precautions so nobody can get one over on ya. Ya know what i mean scully? Cindy.

yes but when i went to meet" BOB the builder "this evening he wouldn't allow no re assigns. I had to be the only one on the lease. Cindy

...Scoop, muck and Dissy. were they there?

LOL sorry couldnt resist...(bob the builder)

D

Ha ha Lol sooooooooooo hard. I thought that might get someones attention. You must have kids. I gotta hand it to ya, you definately know what i'm talking about. No unfortunately scoop, muck and dissy were not their. I wish they were though, i might have asked them if i could be on the show. Anyhow after Bob the builder said no re assigns.... now what do i do ? NO SERIOUSLY. Ha Ha still LOL HILLARIOUSLY. You're cool. Cindy. Oh my gosh i can't stop laughing.

Oh my gosh Wendy wasn't even there but Cindy was. Ha ha

LOL....

Yeah about the lease option and tring to assign it, I dont know if thats is possible. Lets see what some of our pros have to say.

D

I found a house for $70,000.00 it's worth $107,700 according to the county site.
how do i get 100% financing?

The county assessment is often wrong. What is the property really worth based on what similar homes are selling for?

Okay, well I haven't done it yet but my mentor (a REI who has over 120 properties) did this a lot for his first deals. He would get the property and go to his local bank. He would try to get 100% through them. A lot of times he couldn't so what he did is took a HELOC (home equity line of credit) out on his personal house and used that to finance the difference. Don't know if that is an option but that is what he used to do. He kept a good relationship with his banker and would continue to ask when he could finance the remaining part into the original loan. He kept using his heloc as the money down and then would finance it back out between 60-120 days later. Again, the key here is a good relationship with the banker.

Hope this helps.

Agreeing 100%. And by banker I would mean local, small bank. NOT BofA, Wells Fargo, Chase etc..

Hi, I hope some of the pros can help us out with this one. Cindy.

I am a member of a small credit union so could the manager there be the same or don't they count like banks do?

You absolutely can reassign it, or lease option it to another party actually. Just make sure the owner knows that's what your intention is. You just do another lease option agreement with the tenant and you raise the prices to include your fee. I apologize, I wish I was home so I could send you my contracts. I'll be back probably next Saturday, I'm visiting my oldest daughter in Texas. But on the lease option as Sully stated, you don't need to put and or assigns after your name you just do another contract with your tenant, provided the owner knows and is ok with that. I hope this clears it up a little better!

Your friend,
Elena

I'm considering making an offer to lease/option a FSBO property that is vacant because the owner built a new home. Dean talks about making sure the monthly lease is greater than average rents in the area. Why? This may make this deal undesireable because I would have a more difficult time trying to rent the property to someone else (I don't want to live there). Should I keep looking for something I can get at a greater discount? The property next door recently sold (it was a forclosure) for more than the asking price of the one I'm looking at.

Hey Elena can you help me my frinds are in the military and moving next month wonted to rent the house the own with an agent I caled them today and asked about the house I wonna do the sendwich lease what questian should I ask can you help me out in these matter please i already did the search for these topic and that is es clouse as it gets on the lease option. Thanks

I'm not sure I understand exactly what you're asking... Of course you know I will help you out anyway I can. All my contact information is on my website: www.webuyhouses24-7.com. No, that's not a shameless plug, it's for anyone who'd like help. If I don't know, I'll find the resources for you, that's what I do for everyone who contacts me!

Elena

Congrats you just got your superstar What I wonna do is they wonna rent the house out I wonna sugest that they lease it to me and I lease it to someone als so they don't have to pay the agent the fee and they don't have to worry about the house I can buy the house after lets say 2-3 yrs or backout after that time if the people to whom I lease it don't buy it. Is it making sense.

I'm still me though.... Momma E!
Ok, so they're trying to lease the house they live in now? They already have an agent? Do they want to sell it or just have someone make payments and hold onto it? Is this correct so far?

I did not talk to them yet but I called and left a messege that they call me when they get back. So my friends wont to rent there house where they curently live (with an agent) I wont to ask if I can lease with an option to buy in say 2-3 yrs. then turn it and lease it to some one alse thos it make sense. I know sometimes I have a hard time to express myself properly. That is why I'm in Toastmaster. And can you please explaine to me what "LOL" means. Thanks.

You're doing fine with your English! I was wondering what Toastmaster was... Thanks for telling me. Lol means laugh out loud, which I do alot!
Momma E!

Thank for that man I feel better now that I know. So do I. You can Google Toastmaster it will tell you what it is. speek ease club in public speaking.