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This question was asked but not answered and when I went to draw up one
of these contracts for a friend of mine, he asked what would happen if
the tennant would walk away. I was like, I never had a tennant walk
away, because they usually spent a lot of money fixing up the place to
their liking. But it is a valid question.
Ok, in a deal like this:
option fee = $2000
monthly payment: $500 = $400 rent, $100 torwards down payment
1 year lease
So a year goes by and the optionee decides not to exercise his option
because he/she decided to move back with their ex . The optionee is out
the $2000, but what about the $1200 (12x$100)?
This important because as an optionor, you have to pay capital gains
tax on the $400/month but you do not pay taxes on the $100 until you
sell the place (assuming you do not do a 1031 exchange or protect
yourself in other ways). I assume the $1200 gets refunded back? or is
this legally negotiable?
By the way JC, you are generous, I pocket the option fee and do not
credit it to them at closing. But then again, I do tell them how to
clean up their credit and how to make money in real estate with no
money down and no credit. They eventually become very good bird dogs
because people of a certain financial status tend to stay together.
Regards...
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Lease Purchase Option not exercised - now what?
