Are Lease Options Legal in My State?

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Sandwich lease options earn you a profit at every step in the process! But are lease options legal in my state? The answer is YES! Lease options are legal in all states although different laws and rules can apply at the state level. AND… there have been changes to the laws over the years to keep everything on the UP and UP. This is GOOD for a legitimate sandwich lease option that is based on a WIN-WIN-WIN attitude…

This is the GPS to your financial future!

Are Lease Options Legal in My State – Yes, But These Are Not Land Contracts

Embarking on the very profitable strategy of a sandwich lease option should be done with your eyes wide open. That means having the help of someone who fully understands the nuances between different types of real estate contracts. Whether it is my courses or the help of a local real estate attorney, you want to work with someone familiar with both the concepts of lease options and installment land contracts (also called ‘contract for deed’ or ‘seller financing’).

There are key legal differences. The main difference that triggers other legal implications is that the land contract is a completed sale from the beginning. However, the lease option is not a completed sale until the option is exercised.

No need to ever ask again, Are Lease Options Legal in My State?

Be confident that the short answer is YES! Also… the full answer is that you must understand the basic legal requirements for a lease option or sandwich lease option. Lease options and sandwich lease options have been around for decades with states occasionally making changes in the laws so that the deals will be WIN-WIN-WIN.

But different state laws apply to land contracts. A land contract is similar to the way many people purchase cars on a contract. The land contract buyer is immediately the outright owner. They can use the house, modify the house, and do pretty much anything they want with the house. However, the lender is still on the title to the house as security until the loan is repaid in full (much the way a car lender stays on the title).

The buyer (owner) on a land contract gains the tax benefits and acquires the appreciated value. As well as being solely responsible for maintenance and repairs.

Contrast this with a lease option. With the lease option, the seller retains full ownership until the option is exercised. Through the legal contracts, I typically transfer as much of the responsibility for the property as possible to the tenant-buyer as the potential owner. However, ultimately the seller is still legally responsible for the property as the true owner. The seller is also entitled to the tax write-offs and depreciation as well as responsible for paying the property taxes.

Everyone can succeed with sandwich lease options!

What You First Need to Know About Sandwich Lease Options

State laws govern certain aspects of lease and rental agreements, including limits on security deposits, deadlines for returning deposits, and rules against discrimination. These vary a little from state to state, but generally these laws are meant to strike a delicate balance by protecting the interests of everyone involved.

When it comes to sandwich lease options, an option to purchase must:

  1. State the option fee.
  2. Set the duration of the option period.
  3. Outline the price for which the tenant will purchase the property in the future (a state nuance here can be having a defined method to establish the price at the time of sale).
  4. Comply with local and state laws.

Here’s how you start filling in the details for sandwich lease options:

Purchase price. There are two purchase prices. In the contract you have with the seller, the first purchase price is how much you’ll pay at a future date to buy the house from the current owner. The other purchase price is between you and the tenant-buyer. The price difference between these contracts is the biggest of the three different profits you’ll make in the deal.

Term. This is how long both lease option contracts will be valid. It is the number of months you have to complete the purchase from the seller and how long the tenant-buyer has to complete the purchase from you. You want the first contract to be slightly longer than the second contract.

Purchase option fee. This is your second profit point. This is the fee you pay the seller for the exclusive right to purchase the house in the future. The tenant-buyer also pays you an option fee to purchase in the future. You profit from a higher fee paid to you by the tenant-buyer than what you pay to the seller.

Rent credit (optional). When you charge a higher than market monthly rent from the tenant-buyer, a portion of the rent is applied to the down payment or purchase price. This is an additional incentive for the tenant-buyer to complete the purchase. Even if you don’t use a rent credit, you’ll charge the tenant-buyer a higher rent than what you pay the seller. This is your third profit from the sandwich lease option.

I always want students to follow state and local laws for lease options.

How Sandwich Lease Options Follow State Laws

Some state laws specifically protect tenant-buyers against contracts they do not understand. An example is requiring option contracts to contain obvious wording (in specific font size) that clearly informs tenant-buyers of the possibility of forfeiting the option fee. Another example is that some states require option contracts to be recorded in the courthouse in a manner to ensure that the seller cannot sell to someone else during the lease option period.

All of this is important because to be valid and enforceable, an option to purchase agreement must comply with the nuances of state and any local laws that govern the transaction. You always want to check with your state office responsible for real estate to find any applicable laws that may apply to your option to purchase contracts. Also, a good real estate attorney will already know how to work with these laws.

Even after reading your state and local laws, it’s still a good idea to work with an experienced real estate lawyer through your first few sandwich lease options. A lot is at stake financially for everyone involved (the seller, you as the investor, and the tenant-buyer.

Everyone wants the sandwich lease option to be a WIN-WIN-WIN!!!

Your next step is taking action to get all of the answers to any questions you might still have.

Investing In Real Estate with Lease Options.

  1. Advanced strategies for Buying and Selling with Lease Options.
  2. Your Wealth Building Arsenal.
  3. Add Personalized Coaching.
  4. Cooperative Lease Options.
  5. Expand to Get the Deed “Subject To.”
  6. Round it all out by Working with Realtors.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

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