Lease option to buy houses are mighty effective for getting a great deals, however they need to be drawn up correctly or you could find yourself in hot water.
If you have just one takeaway from this article is that drawing up two separate documents is critical.
It's absolutely critical to have two separate documents, and here's how I know.
Several years ago I had leased one of my rental houses to a young couple, Mr. and Mrs. Miller and their two adorable daughters.
And it wasn't even six months into the lease when they stopped paying. I was managing the house myself at the time, and thought we had a good working relationship. So I dropped by to see what's up.
Mrs. Miller answered the door, and shared with me that she had lost her job, but was just hired at a better company. For more money. In fact, she wanted to know if I'd be willing to sell them the home since they loved living there. We talked for awhile about it, and she promised to make up the lost rent as soon as she got her paycheck.
A couple months go by, and I filed a notice of eviction since they weren't answering my calls anymore. We just had to move on, it was becoming clear that they weren't exactly the best tenants.
When we next met up in the Magistrate's court, Mrs. Miller shared with the Magistrate (for those who don't know, a Magistrate is similar to a judge in some states), that she thought they had a lease option to buy house. This sent huge red flags to the Magistrate, and she nearly cancelled the eviction on that assumption. "Hold on, Hold On!", exclaimed the Magistrate.
Seems that if we DID have a lease option to buy house agreement in place, the eviction proceedings would have terminated at that point. The Magistrate went on to explain that an offer to buy/sell is a foreclosure issue. Not one for the tenant - landlord court.
Since that time, I always use a simple lease to rent the property out, and a completely separate document, the Option to Buy document. Every time.
The Option to Buy is kinda like a coupon that the tenant buys, for an Option fee, which commonly is considered their down payment. That Option to Buy document spells out the agreed upon purchase price, document the critical terms such as when the tenant will find their financing to buy the property and an expected close date.
If they don't perform on all of the terms of the Option to Buy document, their "option" goes away, along with any option fees they have paid.
See the link below for the lease to purchase option agreement that I use -- actually, it's the option agreement as a standalone.