bwalston

Adam, this is how Joe assigned deals when he first started his "wholesaling lease options" course. I'm pretty sure I heard him recently say that he's now assigning to the tenant buyer.

Not in my state. If they pay you to find a deal that you are NOT a principal in it's conisdered brokering. So you'd need a license.

Erik, most lenders will require the applicant to be two years OUT of the BK before considering a loan. It sounds like your potential T/B is just beginning the process so he/she likely will not be able to get permanent financing when it's time to exercise the option.

Hey Charles! I'm glad to see that you came to this forum to get your questions about lease options answered ... The guys here know their stuff and you can rely on what they tell ya ... I saw the response to this same query on, as John Jackson calls it, "a less friendly forum." You can follow that advice IF you want to run the risk of the transaction being treated as an installment sale by the IRS and the courts if you ever appeared before a judge. Just sayin'

Erik, I agree with Michael that this form would be part of the closing docs and wouldn't be needed until the tenant/buyer decides to exercise the his/her option to purchase. That being said, here in TN there are a few landlord/tenant docs that need to be signed/delivered when the tenant/buyer executes the lease agreement.

Hey Mike..I make sure that the note has a stated interest rate that is at least equal to the Applicable Federal Rate. If the seller is willing to accept $500 per month, I use that as my P & I, use the AFR and prepare an amortization schedule.

Erik, you have already calculated the fee into the strike price with the T/B, correct? If so, why would you want to reduce the fee simply because the buyer already has his/her finances in order? You could still work the deal as a CA and the T/B simply exercises the option sooner rather than later If they have agreed to the price already, it is what it is... If on the other hand, they have NOT agreed to a price yet, then it's negotiable - although, frankly, I wouldn't negotiate much, because YOU have already done your part of the work on the deal. The timing of when the option is exercised is between the seller and the tenant/buyer.

Sorry Mike, your mentor is dead wrong. It doesn't matter that your loan documents mention zero interest or not. The IRS, as Lynn said, will 'impute' interest on loans that are made interest-free, or at a discounted interest rate that is below market. Each month the Service publishes Applicable Federal Rates, which are used for imputed interest. The service will charge the seller taxes on that amount of interest whether received or not.

Erik - You are correct. You would report the Assignment Fee as ordinary income. Since the Seller didn't receive the option fee (which became the assignment fee) he will report nothing if the option expires without exercise. Should the option be exercised the "option fee" will be shown as a reduction in the sales price of the property. Hope this helps

EXACTLY

Is there any other type? LOL - You DO make a good point

Dee, I have a friend who has had buyers look at the available properties on sites such as realtor.com and select 3 or 4 that they like. He then approaches the owner of those homes to see if he can work out a cooperative assignment. Seems to work for him

Actually, it's NOT a sales tax...and it doesn't apply only to when you sell your home. Being the political junkie and tax geek that I am, I did a pretty thorough reading of HR 4872 Health Care and Education Reconciliation Act of 2010 when it was signed into law. I’d like to offer the following comments for consideration. : Effective January 1, 2013 there is a new 3.8% tax : It is NOT a tax on all real estate transactions. : It IS a Medicare tax on “NET INVESTMENT INCOME” over a certain threshold. : Many people will not have to pay this tax. Who does this affect? The best answer, I think, comes from the law itself. The Act says: What this seems to mean: : The tax would not be imposed until the threshold of $200K for singles or $250K for married filing jointly is exceeded. : The 3.8% would be imposed on the LESSER of the net investment income OR the modified AGI in excess of the threshold. : If you have NO ‘net investment income’ you will not pay the surtax even if your income exceeds the threshold. Net investment income, as far as I can determine, includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses IF the investor is not an active participant in the business. The portion of investment income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.) This is definitely a convoluted piece of legislation, and you should certainly run this stuff by your own tax pro. Only he or she can definitively advise you about your individual tax situation. Just my .02…

In order to close like this you probably should be using a RELEASE and not an ASSIGNMENT. Check out this thread. It should answer some of your questions.

IMHO, your lawyer is dead wrong. Why would you need a deposit in escrow if you have only the right, not the obligation, to buy? Now, there are some states that require 'consideration' for the option. I use the old 'for $10.00 and other good and valuable consideration' clause...it seems to cover most situations And no, I don't think this is the attorney that should be closing your deals. By the way, if he continues this nonsense, ask him to show you the statute, rule or reg that requires a deposit in escrow in order to have a valid assignable option.