List Categories | List All Articles | List Articles By Title
Why Selling on Lease Options is Glorified Landlording
I might upset some folks with this one, but that's okay as I think it's important to get some of my experiences into the light of day. If you fully believe the hype that you won't have any landlording responsibilities by selling on a lease option, go ahead and stop here. Or perhaps you should read on as this article is specifically written for you.
Let's review one of the common misconceptions that is thrown around by folks touting the wonders of selling properties on a lease option:
You won't have any repairs or maintenance.
True, you can certainly have your documents state that the tenant/buyer (TBer) is responsible for repairs. In fact, I've seen numerous variations of this ranging from the TBer is responsible for all repairs to only those repairs falling within a certain price range. Some investors ask the seller to be responsible for repairs up to a certain amount and ask the TBer to be responsible for those over that amount. Insurance will theoretically cover major damages so that's not an issue. And I know from several experiences that insurance will and does cover many repair expenses less than $10,000. So far, knock on wood, I haven't had to test going above that amount.
So, what happens when your TBer moves in, sends you back your move-in condition form and two days later the A/C, heater, or whatever goes out? You're either ponying up some money or you have one upset TBer. Yes, I know it's wise to have them sign off on an inspection or an inspection waiver prior to move in, and if you're not doing that, I recommend it. However, do you think that's going to matter if the TBer just gave you the majority of their life savings and they're looking at a large repair bill?
Yes, you can use some of their funds to purchase a home warranty and I also frequently do that. If the expense happens to be one that is actually covered under the policy on such a short time frame and not classified as a pre-existing condition, then you're fine and the TBer can just pay the deductible. Wait a minute, didn't you shell out a few hundred for the warranty? True, it came from the TBer's funds, but that option consideration was supposed to be yours to keep, right?
Other recommendations on addressing the issue include asking the seller to be responsible for repairs for a certain time period and then passing that "guarantee" on to the TBer. Again, it may be one of those "sounds good in theory" type arguments. The few times I've gone that route I've not had to test it, but I wouldn't be surprised if the seller is a bit upset if I had to call to ask for money after the fact. And what happens if your repair period from the seller is only 30 or 60 days and it takes you longer than that to find a decent TBer. Oops.
What I've found is that typicallly the TBer will agree, sometimes reluctantly, to cover half the expense. I present that solution in such a way that it does appear as if I'm breaking "company policy", but since "I want them to be happy in their new home", I'm willing to bend the rules some. It is definitely smart to push the TBer to get an inspection done prior to move-in as this not only comforts them, it protects you. Make sure you get a copy of it and have the TBer sign off on it. To be clear, I only make this offer for repairs that occur in the first 30 days. After that, they're on their own or insurance will take care of it.
Let's not forget the TBer who doesn't call to let you know that something needs repair. You may have done such a convincing job explaining that it was their responsibility that the TBer chooses not to call. Since they don't have the money to fix the water leak in the upstairs tub, they just let it continue. Now, we've got some mold issues and much more serious repair numbers. It's critical in my opinion that the TBer call you if they have a significant repair, even if they're able to pick up the tab. I want to know what's going on in my properties.
So, to summarize, I think there are some important steps to take when you sell your properties on a lease option. Take what you feel is important and incorporate it into your business if you haven't already done so.
1. Push the TBer to get an inspection done. If they don't have the $200 or so to do this, ensure they sign off on an inspection waiver. It's more difficult for them to come back to you demanding their option consideration and rent back due to needed repairs if they made this choice on paper and signed it.
2. Consider using part of the TBer's funds to purchase a home warranty. Not only does it comfort their concern of potential repairs, it increases the likelihood that needed repairs will get done. It's cheap insurance in my opinion.
3. Set up your standard operating procedure regarding repairs. Like all issues regarding properties with which you stay involved, it's important to promote and maintain consistent, documented procedures. In other words, don't have different repair policies for different properties or TBers. Choose the repair responsibility method or methods you think will work best and stick with them.
4. Another item not mentioned that is also company policy is that the TBer must have and maintain renter's insurance. Policies can be purchased for very little funds and it protects their personal property. Typically, these policies will also have a liability component that provides an initial layer of protection before they get to your policy. This way, if some accident happens, like the tub leak above, that damages their property, they won't be coming to you first for replacement.
Selling on lease options can be a profitable technique if done wisely. Just don't go into it believing it doesn't take any work and that the landlording headaches are completely removed. They aren't.
Thanks for reading.
(c) Copyright 2003, All Rights Reserved.
About The Author
Real Estate Investing Deals That SkyRocket Your Net Worth 10-Fold
Consider these parameters for a real estate deal:Property Value: $250,000 Purchase Price: $160,000 Repairs: $2,500If you analyze the numbers, you see that the equity available in this deal is $87,500 (Property Value minus Purchase Price minus Repairs).So here's a hypothetical question for you: Assuming that the information above is accurate, and the property is located in an area that you view as acceptable and/or favorable, then:If I offered to give you this deal in exchange for $10,000 in cash, would you do it?Remember - this is hypothetical.
Maltas Market Battle
With new destinations such as Bulgaria, Slovenia and Croatia offering two and three bedroom apartments for sale for £50,000, there was concern last year among some Malta estate agents that 2005 could see a drop in the number of UK and Irish buyers choosing to buy a holiday home on the island.With good all year round temperatures enticing many buyers for the winter months as well as the summer, driving on the left and a warm welcome from the local population who nearly all speak English, Malta has been popular for some years among overseas property buyers.
Investment Real Estate Secret: Buy a House Today, With No Money Down
If you've read my article "Purchasing Property With No Money Down. .
The Nose Knows
If you plan on getting the most from the sale of your home you better be sure it can pass the "sniff" test. Let's face it your home should smell good.
Sell Houses Fast & Top Dollar: Design Psychology
How would you like to start a bidding war for your home, ending with a sales price greater than the asking price -- all within your home's first three hours on the market? That's the kind of results you can expect when you prepare your home for marketing, using Design Psychology methods! Design Psychology's innovative interior design strategies go well beyond normal cleaning, painting, and repairs, and have been proven to increase homeowner profit while shortening a home's market time. And best of all, you don't have to spend a lot of money to enjoy the benefits Design Psychology can provide! Here are a few tips for maximizing your sales price, while minimizing the out-of-pocket cost of selling your home: First, you must emotionally detach yourself from your home and begin to think of it as simply a piece of property that needs to be sold.
How to Build Your Dream Home
Building your dream home is a process that takes some individuals a lifetime. Hardly anyone knows early in life what exactly constitutes "dream home" in her eyes.
An Overview of Easements
Title insurance is generally associated with insuring a purchaser's or lender's interest in a particular piece of real estate. The right to use an easement is often considered less important than unencumbered title of the insured parcel.
Real Estate Investing: How to Choose a Lender
To become a successful real estate investor it's vital to have a long-term relationship with a good lender. Having a flexible lender who knows your needs and objectives can be the difference between success and failure in your investment career.
10 Top Considerations For Those Buying Property Abroad
Are you one of a growing number of people considering buying a second home in the sun, an idyllic home from home abroad or a lucrative investment property overseas? If so you're not alone! Statistics show that globally we're all on the move with a recent survey by YouGov revealing that 55% of adult Britons were "seriously considering settling in another country" and the British Centre for Future Studies predicting that by 2020 one tenth of the current British population will be living or working abroad!Add to this the fact that there was a 250% increase between 2000 and 2004 in the number of Britons buying property abroad solely for investment purposes, that over one and a quarter million Brits own second homes in Spain and France already and that the Office for National Statistics in the UK recently revealed that 200,000 Britons go overseas yearly with the intention of remaining for at least twelve months, and you can see that the passion for buying that dream home abroad is universal.But what's fuelling this ever growing interest in the overseas property market?Well, despite reports to the contrary the UK housing market is seemingly ever on the up and those Britons who're acquiring massive levels of equity through their residential property are considering selling up, buying abroad and establishing a pension fund simply on the back of what they have left over from their house sale.
Finding A Capable Agent To Meet Your Real Estate Needs
Whether you're a first-time buyer, selling your current home or relocating to a different part of the country, the support of a qualified, knowledgeable real estate agent can alleviate many of your concerns and ensure a smooth transaction. A professional agent can market your present residence, help you locate the home of your dreams and assist in making your transfer to an unfamiliar area easier.
How to Negotiate a Successful Short Sale
Anyone who has ever profited from doing a short sale has also without a doubt had one or two rejected at some point. Guess what? It is just the nature of the beast?As with all types of sales; you're playing a numbers game.
Spanish Estate Agents and Inspection Visits
The only way to buy a home in Spain is during an inspection visit. If you are serious about buying a property, and are in a position to purchase, this is the most effective way to ensure your find the ideal home, in the ideal area at the right price for you.
If You Cant Afford to Retire...Move
According to Warren Bland, PhD, an award-winning author and geographer at Cal State, people have a great option. It's called "equity-take" that is, the difference in cost of comparable housing between your present community and the more affordable one to which you could move.
How Not To Blow Your Build Budget
Most people who complete a self build will go on to make a profit if they decide to sell afterwards, but what steps can you take to ensure that you don't totally blow the budget?There are lots of advantages to a totally unique self-build but most important is sound financial planning before and during the self-build, to ensure you stay within budget and make worthwhile savings.Research all your costs carefully and get as many perspectives and quotes as possible.
Bubble, Bubble, Toil and Trouble?
We are selling our house. We have lived here for 15 years, the longest I have ever lived anywhere; of the places since I left my parents' home I think my previous best was three years.
Practical Advice for Finding Irish Castles for Sale
Have you ever wondered what it would be like to live in a castle?Have you ever dreamed of dancing in a grand ballroom that at one time was filled with princes and other nobility?If you find yourself dreaming of this lifestyle, you're not alone. Celtic castles, and all things medieval for that matter, have gotten very popular in recent years.
Investing In Real Estate Investors
With the never-ending changes in our Real Estate Markets real estate professionals are starting to pay attention to the sound of new commission streams of income. Some realtors have either shied away or ran-away from such terms as "Cap Rate," & "Cash-on-Cash Returns.
Looking into Buying Mobile Homes?
To own a home is one of the dreams every common man cherishes, even from the childhood. With hard work and years of savings, he might be able to build or buy a dwelling for him and his family.
FSBO - How to Prepare Your House to Sell
Did you hear that? Prices of houses in Phoenix have been jumping 5% each month for 2005 according to market experts! Some even predict that the price of housing could jump an additional 10% for the upcoming year. The shortage of houses for sales and the still relatively low interest prices are causing the price of homes not just here in Phoenix but nationwide to escalate.
Real Estate Investing - So You Want to be a Landlord!
Is landlording the way to go if you are starting into real estate investing today?Receiving cash flow from rental residuals is an exciting idea. If the rental housing is congregated in large apartments within a focused area, the costs of management and maintenance are more economical.
home | site map
All articles are copyright to their owners.
Note: this website lists articles, We do not Write Articles !