How to Protect Your Lease Option Deals

My partner, Rick Vesole, and I do a lot of lease option type transactions. I recommend that you always record every such real estate transaction you enter into on tape. Real estate is generally thought of as the most expensive thing people will buy in their lifetimes. As such, people tend to get skittish afterward. It can save you thousands of dollars if you have “proof” of your intentions and theirs.

  • Generally speaking, if you are a successful real estate investor, judges will always give a reasonable doubt scenario to an inexperienced buyer, typecasting you as the experienced, villainous landlord.

    Rick and I always tape record every closing we do, unless the lease option buyer is represented by an attorney. We also have the lease option buyer sign our notice of verbal and written disclosure, a form that makes the seller tell us:

    • They are capable of deciding if buying and/or leasing a home is in their best interest.
    • They have an adequate educational background to understand what is going on.
    • They have waived their right to have an attorney present at the closing.
    • They have waived their right to have the home inspected at their own expense.
    • The property is being sold in “as is” condition and they are aware of this.

    In a nutshell, I have taken every claim that a buyer (or Legal Aid) has thrown up against me and disclosed it in large 16-point type. The buyer signs this. We tape record the reading of this document and also the closing.

    Recently, a buyer on a lease option deal claimed they were getting a raw deal from our company because we lent them money on a lease option-style arrangement. Actually, we did not lend them money; we bought the home and sold it back to them for a $10,000 profit on a lease option basis.

    They understood all this and signed saying so. Also, they knew how fast they could loose the home in the event of nonpayment. (I should add that these people were NOT in foreclosure when we did this–an important point.)

    The money was used by these people to finish building a home they had started building on this land. They eventually finished construction and refinanced us, and they still have about a $40,000 equity. Nonetheless, they still begrudged us our $10,000 profit.

    Anyway, they called the mayor of our town. The mayor had a police investigator stop by Rick’s law office. Rick showed him the 16-point disclosure. After that, the guy did not even want to listen to the tape. He apologized for disturbing Rick and went on his way. We were paid off about a month later.

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