Real Estate Blog - ALTERNATIVE FINANCING: LEASE OPTION? RENT W/OPTION TO BUY? RENT TO BUY? Chapter 1.

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ALTERNATIVE FINANCING: LEASE OPTION? RENT W/OPTION TO BUY? RENT TO BUY? Chapter 1.

* * * * DANGER - HARD CORE REAL ESTATE TALK AHEAD * * * *

WHEN IS A CONTRACT OF SALE . . . . NOT JUST A CONTRACT OF SALE??

Lease Option or Rent with Option or Rent to Buy
Buyer and Seller agree that the Buyer will lease (rent) the property for a specific term, usually 1 or 2 years at the end of which time the buyer will have the option to buy the property at a previously agreed to price/terms and conditions. The Buyer is buying a home, just not quite yet.

The Lease Option can be a win/win for the Buyer and Seller. The Buyer is able to take possession of their home of choice quickly and the Seller is able to cover their mortgage payments while waiting to transfer title.

Some conditions for this type of transaction are:

***The Contract of Sale is executed with a future closing date, usually one to two years in the future.

***The Buyer and Seller agree on a Sales Price for the property with an understanding that the Buyer can, at the Buyer's Option, complete the purchase or forfeit the Option money.

***Option money held by a trust agent (Broker, Title Attorney, Title Company, etc.).

***The Purchaser Buys the Option. Normally, an option is paid for by way of a premium added to the monthly rent payments. At the end of the Option period, the option money is applied toward the Purchasers closing costs. Or, if the Purchaser exercises their option not to complete the purchase of the property, the option money is forfeited to the Owner/Seller.

***The Seller has agreed to not market the property for sale during the option period so long as the Purchaser remains current in the rental/option payments.

How much does the Buyer pay for the Option? Rental premiums are limited to an amount over "fair market value" rent for the property. Lenders do look at these arrangements because the Purchaser must show the source of their down payment and closing costs when and if the Contract of Sale is processed and the Purchaser makes a loan application. Mortgage guidelines do not permit Sellers to gift Purchasers with their down payment money and closing cost credit from the Seller to the Buyer are limited to specific amounts or percentages of the loan amount.

TIP: If a Buyer and Seller enter into a Lease Option Agreement, documentation is critical to established the source of the money used by the Buyer at settlement.

WHY DO SELLERS AGREE TO A LEASE OPTION?
        Seller has not been able to sell at their desired sales price.
        Seller may have moved and the property may be vacant.
        Seller can rent the property for fair market value plus a premium for the Buyer's Option money.
        Seller believes that the property may decline in value and they want to lock in a price today.

WHO DO BUYERS AGREE TO A LEASE OPTION?
        Buyer may have credit problems and believe that they can obtain a loan in the future.
        Buyer needs a home but isn't ready to commit to a purchase until they know the area better.
        Buyer doesn't have sufficient funds for a down payment and closing costs at a good rate.
        Buyer believes that prices will increase and they want to lock in a low price today.

LEASE OPTIONS ARE RISKY FOR BUYER AND SELLER.
        Home values could increase and the Seller refuse to complete the contract.
        Buyers who need time to improve credit often do not achieve that goal.
        The Lease Option Agreement doesn't adequately describe the responsibilities of the Buyer and Seller.
        Buyer/Tenants may not maintain the property and leave the Owner with expensive repairs.
        Buyer or Seller may have far better offers during the rental period.

HOW ARE REAL ESTATE BROKERAGE FEES PAID? Payment of real estate fees will depend on:
        The availability of cash from the Buyer when the rental agreement / Contract of Sale is accepted.
        It is not unusual for the real estate broker / agent to have to wait a year or two for payment.

ALTERNATIVE FINANCIAL SOLUTION: THE LEASE/PURCHASE AGREEMENT - Chapter 2.

Coming chapters - Land Installment, Shared Equity, TBD.

ACTIVERAIN MEMBERS: PLEASE JUMP IN. This is a hot subject these days with so many homes on the market not selling. It's almost as though we were back in the early 1990s when alternative financing was popular and possible. The more things change, the more they stay the same.

SEND COMMENTS AND IDEAS: If a sufficient number of folks contribute ideas for alternative financing for home buyers and sellers, we can have a real dialogue.

FOR LOAN OFFICERS
It would be particularly helpful for a loan professional to address the matters of documentation of option money used at settlement.

FOR REAL ESTATE AGENTS AND BROKERS
Send us ideas for alternative financing that has worked for you in the past. New agents may benefit from some innovative ideas to market to home buyers who are not quite ready to finance the purchase of a home.  Buyers must have sufficient cash for a Security Deposit and additional resources to encourage a home Seller to take the property off market while waiting for the Purchase to close. Otherwise, the Seller might just as well rent the property and list for sale at a later date.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 04/27/2008 08:05 AM

Comments (44)

rent with option, lease option, rent to buy, alternative financing

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44 Comments on ALTERNATIVE FINANCING: LEASE OPTION? RENT W/OPTION TO BUY? RENT TO BUY? Chapter 1.

APR

2008

LENN- Depending on the market and its condition...a Lease Option can work favorably for the reasons you outlined. However, in a depressed market, a "buyer"/renter, may be less inclined to want to exercise that option based upon a decreased market value of the property they are renting.

The purchase money held in reserve would not offset the depreciate devaluation of the property in Florida for example, where the economic loss was greater than 30% of Market Value in most areas. (From 2005-2007)

However- from the Buyer/Renters stand point, if the price were to be readjusted to current market value- it could represent a substantial gain the purchase of the depreciated property.

For the Seller it is at least generating some income until the market recovers.

It would at the very least have to be crutinized from both sides on an individual basis to dtermine if such an agreement would benefit both parties in the near future. GREAT POST!

Lenn,

I personally like the lease option for the reasons you stated in your post and it gives buyers and sellers other 'options' when market and/or financial conditions warrant!...there are additional risks, however, such as the seller being able to have the property liened by borrowing or foreclosure...and seller may not be able to provide clear title...recording of the option may be a good idea, but carries risks of its own...I would never enter into one of these transactions or agreements without the aid of a seasoned professional...and as you said, the amount over appraised market rent is critical to make the option work with future lenders!!! JMHO, Thanks, Fran

Having done several lease options in the last two years, I can say that they do work. I was interested in the documentation discussion, because that is an area that we need to tighten up. Even in tis depressed market, I have people looking right now for lease options because they have credit dings.
JimG

Allison. Thanks very much. This is exactly the kind of comments I was looking for. As for the matter of future price increase/decrease, the appraisal process is often the final word in determining price. Future value is one of the reasons lease/options do not work. While buyers often have a dream of buying a home, they're not quite ready, it is the unknowns that cause failure in many of the contracts written.

Fran. Thanks. Another thing I didn't consider was liens agains the property. Thanks for covering it. When all of these comments are reviewed, I'll add a list of pros and cons to the post.

Jim G. Thanks for commenting. Credit "dings" are the #1 motivator for the buyers to enter into these contracts.

Hi Lenn

Great overview of a challenging concept that is filled with "opportunities" for many different problems before fruition. I am not a fan of option to purchase contracts because so many of them just blow up and everyone leaves with a sour taste and, oftentimes, it cost both parties more than they could have ever imagined in attorney fees to resolve the matter, not necessarily close the transaction.

Frequently, after living in a property for six months, most of the house warts have been unpleasantly discovered, the property two doors down just sold for $15,000 less than they agreed to for this property and, the previously helpful seller, doesn't want to be bothered with maintenance issues, regardless of how it was spelled out in the agreement.

With more option-to-buy contracts coming into the market, a problem that is going to start appearing again relates to determining if or how much of an equity position an option-to-purchase tenant accrues over what period of time. The court have ruled many different ways in deciding this issue and, again, it costs everyone involved time and money to resolve.

My recommendation is to keep things completely separate. Use a Board or Association Standard Lease for the rental period with no discussion of an option to purchase. At the same time, initiate a sales contract spelling out the terms and conditions under which the purchaser is going to be able to buy the property. I would also, at a minimum, specify:

that this is not an option contract;
this contract may not be sold or otherwise conveyed without permission of the seller,
a target closing date
seller credit, if any, toward closing costs
have an agreed to selling price or an agreement to price at fair market values as determined by one to three appraisers (or some other formula)

I'm sure I have left out other concerns and considerations, but I gotta run for an appointment.

Cheers!

Cheers. Thanks for commenting. Hope you return to log in and repost. I am not a fan of lease/options either. However, due to increased hardship with selling homes, more owners are considering these offers. I know that I'm getting more calls from buyers these days seeking these options.

My goal with this article is to open discussion on the matter for agents who haven't been around since the last dark ages in the early 1990s.

You wouldn't believe how many calls I get on true junker properties asking if they can "rent to own" the property. Some are not habitable. I always prefer, if doing something like this, to do a delayed close with a regular contract with earnest money, time to close (even if a year off), that earnest money is non-refundable for any reason, etc.

But mostly I don't like any of this because it usually doesn't work out. The potential buyer gets into the house and as someone above stated, discovers all its flaws and no longer wants the thing. Credit problems are almost the only reason a buyer uses this.

Barbara. Credit "dings" are the primary motivator for folks who can't buy now want to find a home for sale, rent it, clean up their credit and then take title.

Would that it were that easy.

I just had a buyer who was able to take advantage of the Ameridream program. The seller pays into the program and the buyer receives downpayment assistance. In this case the buyer received approx $8K - minus a small fee (approx $250). It is a great program.

Joan. We've done a number of Ameridream contracts. They do, indeed, work. We use Nehemiah, NACA, etc.

However, the buyer has to be credit worthy. Most prospective buyers inquiring about Lease/Options are credit impaired.

Lenn- Great post. I have been wondering more about the nuts and bolts of the lease option contracts and just how an agent is compensated and is involved. I am looking forward to the discussion and the rest of this series.

Best,

Scott

Bill. Cross your fingers that enough folks see the post. We should be able to get a good discussion going.

Lenn really good post. I have been talking with many desperate sellers about this option and we talk about the pros and cons. I do agree that the challenge is finding buyers that have dings, but are motivated to clean up their credit so they can purchase the house. This is the same issue with LSC (land sales contracts) that the seller takes some risk.

I do think that when structured and well thought out, that they can be a really good thing. I do think that these contracts really do need real estate agent or attorney representation in order to make sure that buyers and sellers are protected.

We don't have the kind of declines like other parts of the country, but it is still a concern for buyers that they are purchasing at today's prices. There is a "price" to pay for trying to buy a home with bad credit.

Lenn,

I love creativity.....a much better way than these crazy 100% loans with adjustible rates.....I bookmarked, thanks for this great post

Lenn- In this market, I think we need to explore all avenues, to get the deal done. Credit is not the only stumbling block for buyers. Often, they can't move forward with the purchase because they have been unable to sell their present home. In my most recent post, I suggested revisting the "dreaded" Hubbard Clause. If the buyers' offer is accepted with the Hubbard, they have more incentive to aggressively negotiate, on the house they are selling.

These can be good options..great article! I still find it difficult to believe that with 5.5-6.0% interest rates people can't buy homes. Maybe it's time to set the sights a little lower?

Lenn.... this is an excellent post. Not sure why it didn't get featured... let me click that flag thingy.

Seriously though, you brought up some excellent points on both sides of the perspective... the two big ones that stand out...

Seller may have moved and the property may be vacant.

Buyer may have credit problems and believe that they can obtain a loan in the future.

In regards to the lending side of things.... most important is to make sure the consumer works on those credit issues, if there are some. But I would think that this would be the main reason why they couldn't buy in the first place. With no money, you can still utilize FHA and the down payment assistance programs.

Another thing to remember which I don't think I read is.... when the appraiser appraises the house, that appraiser will do a rent comparison of that property vs other properties like it in the area. Usually there part of the rent is applied to the purchase of the property. And if the rent is higher than what comes back on the appraisal, that buyer might not be able to get that money back to be applied towards their closing costs. The only way is to use it as the seller concession. But if the maxed was already used in the agreement, then the other monies would not be allowed to be applied.

Overall, I haven't been a part of one of these in a long time. But they could come back some. I think why they were never big is because either the real estate agent didn't want to wait a whole year for a commission check or the same for the loan officer... sad, but probably so true. excellent post.

Back to basics, hey? We had to do things a lot this way in the earlty to mid nineties after the first George Bush had interests rates up to... what was it 18-21%? ON MORTGAGES! People owed more than the home was worth so could not sell outright, short sales were s rare and unknown way of doing things. It was a way out for the sellers. The buyers are thankful for the opportunity to buy and the sellers are thankful they are not in foreclosure or stuck in the house. Win, Win. We WILL be seeing A lOT more of this.

Scott. Thanks. Hopefully another post or two will cover all of the questions.

Melina. If I were a seller, I'd simply rent, but there are some advantages for a seller under this option. For instance, if the buyer defaults, any money on deposit is uaually forfeited to the seller.

Dan. The lease/option is a very small niche and not going to compete with any product that will settle within a reasonable amount of time.

Marilyn. We do Hubbards regularly here. Many more so in this market than in years past where we'd just be laughed at to suggest a buyer's contingency of any type. One of our agent closed a house recently that had a 60 day contingency WITHOUT a KO clause. Couldn't have done that a couple of years ago.

Tony. It isn't usually the interest rate that is keeping out. It's usually credit dings or too much debt.

Jeff. Thanks very much. I was hoping you'd spot this post. Yes, the appraiser's role is critical. I mentioned that the lender wil look at the amount of the rental premium, but you're right the appraiser will look too.

Of course, the FHA with down payment assistance is a better solution. The problem, as I mentioned is the credit.

Patrick. Thanks. Yes, indeed, we did these in the early 1990s. Funny though, I thought the high interest rates were a gift from Jimmy Carter. No matter, it was a killer.

I used to handle a lot of lease option sales in the early 80's. Lease options were popular then primarily because buyers were unable to obtain conventional financing -- the down payments were too high and the interest rates were astronomical. Today, I'm seeing more sellers advertising their homes as a lease option but land contracts are a better choice for buyers who otherwise can't qualify. But with the re-emergence of FHA loans, coupled with first-time home buyer programs, many more buyers qualify to buy a home outright, so there is little reason to even consider a lease option sale.

When I did lease options, though, the future sales price was often agreed upon in advance. Buyers were at the whim of the market. If prices went up, they made out. If they fell, the buyers might not exercise the option and were out all the option money (which typically went to pay the agent's commission) and paid all the extra rent for nothing.

Nowadays, most sellers who will consider a lease option are doing so because they can't sell the home. They also probably owe too much, and they want the rental amount to cover their mortgage payment. In these cases, again, the buyer is better off cashing out the seller and controlling the home in its entirety. It makes sense to do a lease option if the buyer can control the property for less than a mortgage payment, but that rarely happens unless the seller has tons of equity. And with tons of equity, the seller should be able to sell and still pocket a decent amount of profit.

"The availability of cash from the Buyer when the rental agreement / Contract of Sale is accepted.
It is not unusual for the real estate broker / agent to have to wait a year or two for payment."

End of discussion. Complete waste of time.

Unless the owner is an investor and fully understands the risks and has the money to keep things afloat - I highly advise any seller to consider lease option as a viable alternative to the sale of their home.

Put it on the market and sell it straight up. Period. Suck it up, take your lumps and move on if you have to sell. Forget lease options.

Additionally - the issue of accelaration clauses - is huge - especially in this market. Lease Options violate DOSC (due on sale clauses) and legally speaking - should be thoroughly considered.

For me as an agent - I avoid them or refer them to other agents for a fee. This way I don't have to get involved and I can spend more time prospecting. :)

Lenn- I am not a fan of lease options. We have done a few in our time and they did not work out well for the seller. Each of them, the renters stopped paying rent and left the house in total disrepair and stole things, etc and then they had to evict them which ended up being harder than a regular eviction.

I myself did a lease option on one of the houses that I bought once, and it worked out really well. We ended up selling the house and splitting the profits with the seller. We had a great relationship with him and it was all good. But I think that was a rare situation.

Excellent, Lenn. I have not been involved with a lease option although I have a client who is considering it and this was most helpful. I don't feel particularly comfortable advising someone on these things, yet. The big risk I think is the potential sales price shift in the future...up OR down. As a seller I would be rather concerned about this as well the the risk of the tenant not taking care of the property (which can happen with any tenant, of course). However I can also see it could be a win/win if done correctly.

Jeff

Hi Lenn, A option to purchase here in California is a financial instrument and may also be sold. The valuable consideration for the purchase of the option is best when it is not a part of the lease consideration. The share of any rents that may be contributed to the Buyer may not exceed the ( usual )6% that the seller may contribute toward the buyers closing costs without lender approval in advance. This advance lender approval is most difficult to obtain as the Buyer's loan will not have gone through underwriting and there would be no guarantee by the lending source, right up the time of funding. Talk about a Catch 22.

In a declining market, the lease option is a bigger risk for the option holder, as the property may decline in value * though still subject to appraisal * if the offer is written correctly to protect the Buyers interest. In an escalating market, it is a greater risk for the seller in that if the market values should increase, they would be saddled with the agreed to in advance price.

A possibility would be to procure a separate option to purchase at a future date ( 1st right of refusal). Then create a lease that may have a rent below market feature and the tenant can save their own money for the down payment. The risk is that the option is still a financial instrument that may be sold or even given to another party not related to to the tenant.

Getting both parties to sit with legal council can prevent many misunderstandings and may generate a workable transaction that is beneficial to both parties. Good Lawyers can make this sort of transaction doable.

Hi Lenn,

Thanks for the info, as well as breaking down all aspects of the lease option. I have seen a few successful lease options here, primarily sales by an investor. Investors look at the transaction solely by the numbers. Buyer/renter/tenant must have the ability to get their credit healed up and the discipline to do that. Other problem is that lots of agents don't understand lease/option and don't want (can't afford) to wait to get paid. We are also seeing Contingent sales coming back now that our market is not on fire as it was the past 4 years, but Contingent on Sale of Buyers house is a different issue.

List and Sell (and know all the possible avenues as well as the pros and cons of them)

Gary @ RentonHomeFinder

APR

2008

How much over market are optionors willing and able to pay and how much of an option payment is normally paid up front? I have heard 1% of the future value to buy the option and an additional 20% over market rent. Can all this extra money just stay with the seller and the credit back be made at closing, if there is one? Or do some of these funds have to stay in escrow?

Lenn: Interesting and thought-provoking post; however, lease options have all but been outlawed in Texas in the recent past. You can still do them here, but my broker (Keller-Williams) has marked them Verboten for those of us associated with them. We can only do leases with first right of refusal clauses in them. This has been driven by the volume of litigation cases in Texas over the Lease Option concept. When prices are named in advance of an actual closing, usually someone walks away mad from the sales transaction and feels they have been taken advantage of. My team leader was the past Chairman of the Texas Association of REALTORS and a real legal beagle and she has recommended to me many times to steer clear of these sorts of deals for the aforementioned reasons.

I too would like to hear the answer to Roberts question? i have been placing ads in our local paper asking renters to stop renting and buy. What i get from this lately are people wanting to rent to own. I know little on the subject so thank you for this post. This why I love the Rain.

APR

2008

In this market it can be a real win for the person that wants to purchase and can't finance the transaction just yet!

Hey Lenn~ I have done several Lease Options back in the 1990s and none of them worked out.

Elizabeth. I prefer the land contract too. The buyer gets the tax benefit and the seller gets someone to make their payments. I just want someone with sufficient money to pay the agent and protect the seller from damages.

No matter how you look at any of these alternative financing, they are fringe and don't always work out, usually the planned credit repair doesn't happen. Most of the lease options that have contacted me are because of credit issues.

Tom. Excellent points, especially the acceleration clause.

Katerina. Your experience mirrors most agents'. Not your personal case, but those with consumers.

Jeff. My feeling is, if you want to rent, rent. If you're ready to buy, buy. But, as long as these schemes are out there, consumers will ask about them.

William. Thanks. It's much simpler in my area. We tend to keep lawyers out of these things.

Gary. I'm getting calls from buyer every week asking about homes in the IDX system that they want to know "Can we get a 'rent to buy'". It's a sign of the times.

Robert. They're two separate monies. The rent is the rent in the lease agreement. In the purchase agreement, the seller agrees to credit $XXX to the buyer at closing. The owner keeps the money and if the buyer doesn't close the money is forfeited anyway.

Steve. That makes good sense and it's good advice. I do NOT recommend lease option contracts. I'm merely describing them and generating discussion. We've gotten some terrific comments, yours included.

Barbara-Jo and Bill. Could be. But, it sort of depends on the reason why the buyers wants the transaction.

Doug. I remember when they were very popular "back in the early 1990s". They appear to be coming back. When sellers can't sell, they'll consider these options.

Good post. Our market is just starting to weaken here in the NYC Suburbs. It will be interesting to look into alternative deals.

How do you structure commissions on these?

All the best!

Kevin. That is one of the hardest things. For land contracts, we usually get 1/2 at the first closing and the other half at the refinance closing.

For lease option, it's going to be whatever you can agree with the parties.

Most of these cases are with "buyers" who aren't ready to settle and the seller doesn't have the money to pay the agent until and unless it does settle from the net proceeds of the sale.

MAY

2008

Lenn-Rock on lady! This is excellent and exactly what I was looking for. You should be writing books! Thanks you and just in time for our Business Resource Meeting! :)

MAY

2008

Just another couple of thoughts as I'm getting ready to set one of these up --

Prior to buyer's possession, I'd recommend a home inspection. Buyer and seller will know exactly what condition the property is in; it will eliminate arguements later over "that door was/wasn't broken before"; and any items broken during the term of the lease will be evident.

Also, consider putting a home warranty on the property. It will keep major unforeseen repair costs down; and the seller could have the buyer to pay the service call fee (~$50) they can just deduct it from the rent.

-- Lupe Teel, GRI Teel & Teel and Associates

Lupe. Good luck. I believe that a home warranty should be on all properties all the time.

A home inspection prior to the agreement is, of course, a good idea. When the buyer makes an investment in their future contract, they are more likely to follow through.

One of the reason so many of these transactions fail, is because the buyer has little investment and just wants to rent until they can get their credit ready to buy.

AS both a property manager AND a salesman, I HIGHLY recommend writing BOTH a lease agreement AND the Sales contract. Link them both together so that if you have to evict the tenant that cancels the sales contract, and so that if the Buyers don't buy you can cancel the lease (unless you WANT to just keep them as tenants).

MAY

2008

Great Information. I do a Get Mortgage Ready Program for my realtors that want to put together lease to purcahse programs. This makes the buyer serious and we have an established plan for when they will qualify for the program.

John Thomas - Certified Mortgage Planner

MAY

2008

Great post. Very informative!!!

MAY

2008

Excellent post everyone! Lots of great information to use here! Thanks again!

MAY

2008

Lenn - excellent post. Thanks for starting this off, as I've already learned quite a bit about a transaction we handle quite often.

Recent law changes in Texas have certainly made the lease option more difficult (as Steve mentioned earlier), but with our attorney's guidance we still work them. We first sign a standard lease, followed by a purchase contract with a closing date 1-2 years forward. Since my firm includes mortgage brokerage services, we work with the buyer to correct any financing issues along the way (the program also includes a paid-for credit counseling service). Having a mortgage broker involved from the start also helps to make sure there is a legitimate chance the buyer can qualify in time.

We actually market for these buyers first, rather than just marketing our listings as 'lease option available'. We'll take an almost home buyer, find them a home, then arrange for an investment client to purchase the home. This works best with new homes that have 10-20% of negotiating room, allowing the investor to make a decent profit in addition to the monthly cash-flow. It also allows us to make a commission from the initial sale, thus we don't have to wait 1-2 years for a return.

Since Houston is such a stable market, assigning a purchase price up front is not such an issue. We typically base the price on a base value + a set appreciation.

My questions:

- Does anyone charge the home owner a fee for arranging the lease option? Rather than wait 1-2 years for a commission, why not charge a fee to the owner that is some percentage of the option fee? We have not tried this yet, but as most of our clients in these transactions are investors, it makes sense.

- Since we structure the transaction with two separate instruments -- a lease contract and an option contract -- the seller could have problems if the lease was broken. They now have an option contract for up to 2 years and no tenant. We add a clause to the option agreement that the seller may lease the home during the term of the option...as our clients are mostly investors, they're fine with this arrangement. But what if the home owner is really trying to move the property? it has not come up yet, but I remain concerned about this. Any suggestions?

Again, thanks for the post.

-Johnny

MAY

2008

Johnny. There is no way that I would manage a lease-option for anyone, anywhere, anytime without being paid. The possible sources are:

1. Option fee paid by buyer pays a percentage of the real estate commission at close of the lease agreement. This is usually about $5,000 to $10,000 and is split between the seller and agent.

2. First month or more rent in advance of occupancy. We wouldn't handle a lease-option without at least the same money we'd collect on a regular rental which is one month rent.

3. Non-refundable deposit from buyer for land contract whereby the buyer takes possession at settlement of the land contract and has 1 or 2 years to refinance. This amount is usually about 1% of the purchase price of the price of the property. Many buyers have selected this option because they get the tax deduction for mortgage interest. The real estate company receives 1-2% at close of the land contract and the balance at refinance.

One way or another, you have to be paid for management of these transactions.

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