Oleg
Potemkin, (RA) Coldwell Banker Pacific Properties
Tel:
(808) 398-9987 Fax: (808) 949-6862 Email:
oleg@hawaii-realty.com
Avoiding
Lease Option Pitfalls
You can't buy a
parachute after you jump out of an airplane. Likewise, jumping into
a real estate deal without the proper education can be a more costly
real-life "seminar" than the one you chose not to attend.
Some may say, "the seminar is too expensive." I say,
"compared to what?" Compared to making a costly mistake,
the seminar is cheap.
Here are a few pitfalls
of lease/purchase deals of which you may not be aware:
Make
Sure the Owner is Making Payments
If you are in a "sandwich" position wherein you
are leasing a property from an owner (with option to purchase) and
subletting to a tenant, you want to make sure the seller is paying
his mortgage. If he doesn't pay you can get wiped out in the event
of foreclosure. You can always make up his payments and deduct it
from what you would otherwise owe him, but this could be more money
than the deal is worth. You want to find out early if the seller is
not making his payments.
The easiest way to
make certain that the seller is making his monthly payments is to
setup an escrow. There are companies in every city which, for a
monthly fee, will collect your payment and make the seller's payment
for you.
Some banks now have a
24-hour toll free customer service line that permits you to enter
the borrower's loan number and social security number to verify when
the last payment was made.
Lead-Based
Paint Disclosure
It amazes me how many lease/option "gurus" forget to teach
their students about disclosure requirements. Even if you are not
the owner of the property, you are required to disclose. Federal law
requires that the lessor of any rental property constructed
before 1979 disclose the presence of any lead-based paint or hazards
known by the lessor and provide the lessee with all reports in his
possession. This applies even if you don't own the property and are
just "sandwich" leasing.
In addition, the
lessee must be provided with an EPA pamphlet entitled "Protect
Your Family From Lead in Your Home," and be given a 10 day
period to conduct an inspection for lead-based hazards. It is
advisable that you have your tenant sign an acknowledgment that you
have complied with these requirements.
State
Disclosure Requirements
Disclosure is the name of the game in real estate today. When in
doubt about whether to disclose something to the tenant, do it, and
do it in writing. Some states have extensive disclosure requirements
on leases and sales. For example, California requires disclosure of
"seismic hazards" in certain areas. Many states now
require Radon Gas disclosure. One student of mine recently e-mailed
me that the state of Ohio requires written property disclosures
about the condition of the property upon the execution of a
lease/option agreement.
The point is that a
lease/option may be construed and/or confused by your state
officials as a sale. Thus, when you lease/option, you should
disclose to the tenant any item that may be required to be disclosed
if the transaction were an outright sale.
Buyers
Have s Short Memory
It's easy to find a tenant/buyer for your lease/option properties.
The cash they give you up-front is non-refundable and is
tax-deferred income. If the tenant does not exercise his option to
buy, you keep his money and find a new one. Sounds rosy, doesn't it?
What the
"gurus" don't always tell you is that tenant/buyers who
don't exercise conveniently "forget" that the money isn't
refundable. They often sue you to try to get it back. This is why it
is important to make sure your paperwork is in order and that
everything is clearly spelled out. Consider tape recording
your conversation with the tenant/buyer so that you can
"refresh" his memory.
Ignorance can be more
dangerous than education. Of course, "doing" is as
important as learning. You don't need a "PhD" in real
estate investing before you do your first deal. Read some books,
take some seminars, join a local investment group and visit CRE
Online often! Then . . . take ACTION!
About the Author .
. .
William Bronchick, CEO of Legalwiz Publications, is a
Nationally-known attorney, author, entrepreneur and speaker. Mr.
Bronchick has been practicing law and real estate since 1990, having
been involved in over 600 transactions. Visit his site at http://www.LegalWiz.com
I invite you to browse through my
Hawaii real estate site and feel free to call me anytime at (808) 398-9987 or email me with any questions you may have about buying or selling real estate in beautiful Hawaii. I look forward to hearing from you and helping you with your all Hawaii real estate needs.
Your Hawaii
Luxury Real Estate Specialist
Oleg
Potemkin, (RA) Coldwell Banker Pacific Properties
1909 Ala Wai
Boulevard, #C-2,
Honolulu, Hawaii 96815 USA
Direct: (808) 398-9987 Fax:
(808) 949-6862 Email: oleg@hawaii-realty.com
Home
| Buyers
| Sellers
| Contact
© Copyright 2002-2011 Hawaii Real Estate All Rights Reserved. Privacy Policy Sitemap
