I want to talk a little bit about Equitable interest and lease options.
Equitable interest is illegal term and it means that you got a legal homeownership right in that house, Equitable interest in the property.
There’s been some lease with option teachers and trainers talking about having a tenant and a lease pay for things that they shouldn’t be paying for, like maintenance costs.
If you’re asking the tenant to pay for things outside of their rent, then they may be creating some Equitable interest or ownership in the property because they’re paying for things they shouldn’t be paying for.
Another thing, it has been said that if you give someone an option to purchase they have Equitable interest in the property just because they hold an option. An option is an option to purchase at some time in the future.
It’s been my practice to not give a tenant an option to purchase when they move in.
We give them what’s called a contract for option to purchase.
This is like a virtual option, but they have to earn the option because they have to pay their rent on time and keep the property tidy, and then got Bank qualified within 12 months.
If they don’t do that, they don’t get their option.
The option to purchase is created but held in escrow.
Also what’s held in are escrow instructions that tell the escrow agent that is going to be an either or situation.
Either occupants are going to get Bank qualified and step into a sale and purchase agreement which is already created, or it is going to revert to a lease.
The sales price is tied to new appraisal.
If at the time of financing a new appraisal does not come in at the right value, the buyer is not going to be able to get permanent financing.
I know it’s a gamble that the property will appraise at the right price.
But that’s what selling on lease with option is all about.
You’re getting a very solid person inside the property that will take care of it and that will give you a fair price for the property.
