Anyone has experience doing lease to own?

Asked by Dixon Wong, Dallas, TX Wed Jun 27, 2012

I am sure we all get lots of questions about prospect inquiring about lease to own. Have anyone closed anything that is lease to own on here? Since TREC doesnt have any promulgated form. What contact do you use and how does the commission work? Most importanly, where do you find listing for lease to own? Any pointer would be appreciated. Thank you~

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16
Don Tepper, Agent, Burke, VA
Wed Jun 27, 2012
BEST ANSWER
As Mark notes, lease-options are pretty much impossible in Texas. For example, they can't be for longer than 6 months. And there are other requirements that make them practically un-doable.

There are some ways to accomplish a similar result without engaging in lease-options/rent-to-owns. For example, numerous investors in Texas use land trusts. To oversimplify: The owner puts his house into a trust. The would-be buyer is added to the trust as a resident beneficiary. The terms and conditions of the trust spell out what the resident beneficiary must do. At a later point, the house is brought out of the trust and the resident beneficiary has the right to purchase the property at fair market value. However--similar to a lease option--the resident beneficiary may receive credits which effectively lower his/her purchase price. See http://www.landtrust.net for more information. There are a number of other techniques, too. A good investor-friendly lawyer should be able to help you.

As for finding the listings--that's very easy. I wrote a blog on it; see http://bit.ly/findaleaseoption.

As for the commission--that depends. Often, part of the commission is paid up front out of the option fee. (Assuming you could do a lease-option. In Texas, the process is a bit different, though there's still an up-front payment from the resident beneficiary.) That is: the tenant-buyer (in a lease option) or resident beneficiary (in a land trust) provides up-front money which typically would go to the seller. It does, but with a Realtor involved that money then can go from the seller to the agent. That often isn't enough to cover the entire commission; up-front money in a lease-option or land trust often is in the range of 2%-3% of the purchase price. The remainder of the commission is paid at closing . . . if there's a closing. So often/usually the agent does have to wait for some of his/her commission.

There's a Realtor in Michigan named Wendy Patton who has lots of other strategies that are Realtor-friendly. See http://www.wendypatton.com

Your first challenge, though, is to come up with a process/procedure that complies with Texas law. Once you've taken care of that, the rest is easy.

Hope that helps.
1 vote
Linda Lorenzo, Agent, McKinney, TX
Thu Jun 28, 2012
David Fair of Hexter-Fair Title Co. (who by the way wrote much of our promulgated contracts) will not touch a lease option. He says if you do anything like this it should be for 179 days or less, but where you would get the forms I have no idea.
When I was licensed in Calif. I actually did several lease options including selling my own home this way! There you asked for money up front (the option money) and it was usually substantial like $5000 or more and this was forfeited if the buyer didn't buy the home at the end of the option peiord. The rent they paid you was just rent, it did not get credited to the agreed upon sale price. The realtor got paid when the purchase contract was closed.
1 vote
Annette Law…, Agent, Palm Harbor, FL
Wed Jun 27, 2012
Is there anything Don doesn't know??
Great response Don. Had to delete my 'this market has not disappeared" response.
As Don't last sentence suggested, consult an attorney.
1 vote
Michael Brow…, Agent, Allen, TX
Fri Oct 19, 2012
These are situations that may have many legal implications; I do not recommend them, nor do I get involved in them.
0 votes
Brent Rice, Agent, Plano, TX
Thu Sep 27, 2012
Dixon, if you still have any inclination to pursue prospects looking for "lease-to-own" properties, you should call TAR's legal hotline and see what they have to say. I am highly confident that you'll decide to spend your time working with bona fide buyers and not risk losing your license.
0 votes
Scott Hulen, , 64068
Tue Jul 3, 2012
We are 2 out of four in lease purchase options I think the real key is a large down payment such as 5-10%. When people have real money on the table they generally close within 24 months. If you let them move in for 1000 or 2000 dollars then you just have a renter and it will never close. The 2 we had that closed had large down payments the 2 we failed on the “renters” had less than 2000 in the game. The downside for a Realtor® is you generally don’t get paid unless the property goes to closing. Good Luck!
0 votes
Annette Law…, Agent, Palm Harbor, FL
Mon Jul 2, 2012
As Don pointed out, in Texas Lease/own is a convoluted mess....a lot like Short Sales which are done everyday. Maybe it's a learning situation.

The solution that lease option provides is valid and workable. This market,however, is populated with predators seeking those who think they can circumvent financial discipline. These folks lose and lose again. They are the same ones who come onto aggregate websites looking for a home they can not afford nor intend to pay for.

A multi-dimensional real estate professional would be well advised to know how to appropriately implement a lease/option to be of service to a burgeoning market segment that is loan worthy but has been denied by the biggies. You will want this resource for your 'A-List' buyers and 'twilight zone sellers. It is NOT more complex than a short sale. You WILL need an attorney and know EXACTLY what you are wanting to accomplish and for whose benefit.

Be aware, if you can not find an attorney and/or title company to facilitate, then this segment is not available to you.

Where do you find them? This is your "A-List' benefits package. You have the buyer and the invisible seller. You have these selective buyers and sellers because you are providing real solutions.
0 votes
John Souerbry, Agent, Fairfield, CA
Sun Jul 1, 2012
I agree with all the other responses, especially the "talk to your broker" advice from Lynn.
Here is why I stay away from lease options:
- Few ever close
- Tenant/buyers seem to think that qualifying for a lease option isn't as difficult as qualifying for a standard mortgage, which is false. The qualifying criteria should be exactly the same, which means that 99% of those seeking a lease option are wasting your time.
That's all. Bye-bye.
0 votes
Joan Lorberb…, Agent, Boca Raton, FL
Sun Jul 1, 2012
I've never done one and I've been licensed for many years. Every once in a while consumer questions pop here on Trulia asking if we agents know of any lease to own properties. Makes me think they all were watching the same 2 AM infomercial. I can think of several drawbacks from both the lessor/owner and the lessee/buyer side that I would find it difficult to be part of such a transaction.
0 votes
Jim Simms, Mortgage Broker Or Lender, Louisville, KY
Thu Jun 28, 2012
I would chat with your favorite loan officer first before allowing a client to throw away their hard earned money. When it comes time for the “buyer” to get a loan the terms of the lease option will probably not work out the way your client anticipates. A mortgage underwriter will follow the guidelines not the contract between the seller and tenant. You’ll get sued if you tell them otherwise.

Jim Simms
NMLS # 6395
JSimms@cmcloans.com
Financing Kentucky One Home at a Time
0 votes
Dallas Texas, Agent, Dallas, TN
Wed Jun 27, 2012
Best you speak direct with your broker for all your questions and guidance . Perhaps they have a training class on menu of subject matters

Lynn911 Dallas Realtor & Consultant, Credit Repair Advisor
Multimillion Dollar Sales Producer
972-699-9111
http://www.lynn911.com

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0 votes
Bruce Lynn, Agent, Coppell, TX
Wed Jun 27, 2012
You're too good to get sidetracked by lease to own.
Rarely is it a good deal for a buyer.
Often it is a bad deal for the seller.
I've seen more messed up deals on these types of contracts that cause real headaches for both parties.
If you're even thinking about this, go to your very most trusted title company where you've closed most of your deals, and ask for an appointment to visit with their attorney. Ask them about their opinion if this is the right path to follow.
If that doesn't work, ask your E&O insurance attorney.
0 votes
Debra (Debbi…, Agent, Livingston, NJ
Wed Jun 27, 2012
I know you're asking about doing this in Tx, and I am in NJ, but just to chime in, and for the record, I have never, in 27 years, done a "lease to own", or "rent with the option to buy", or whatever you want to call it, transaction.

What I find interesting, and perhaps a bit concerning, is that so many consumers online ask about this sort of arrangement, and I don't think they really understand what it means, or what the ramifications can be.

Many/most of them, from what I have seen, seem to think they simply pay rent, and then are credited with the rent payments towards the purchase price if they decide to buy the house at the end of the lease.
It's good that clear, precise discussions, like this one, take place, so that consumers get a better idea of exactly what this agreement does and doesn't entail.
0 votes
Kenneth "Ken…, Agent, Dallas, TX
Wed Jun 27, 2012
Dixon,

I would stay away from Lease To Own deals. They are lawyer magnets in Texas. If the client can not get a loan through FHA then they are not ready to purchase a home. So many things can happen to the Buyer and to YOU during and after the sale. It is just not worth it.

GOOD LUCK.

Kenny
0 votes
allan erps,A…, Agent, Pearl River, NY
Wed Jun 27, 2012
Have one that will probably close down the road... Otherwise I have done about half a dozen of these and NONE have ever worked.... My overall answer is that it is mostly a crapshoot but to protect yourself and other Agent in the lease agreement. Best of Luck!
0 votes
Mark Struznik, , Denver, CO
Wed Jun 27, 2012
No more lease to own in TX. Legislature took this option away a few years back.
0 votes
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