How to handle the option deposit

I’ve got a simple question to answer for you. It has to do with a very common question I get a lot about the tenant-buyer’s option deposit money on a lease option deal. 

How do you get that option deposit money to apply toward their future down payment? 

Well, here’s how it works. It’s not that hard. And, yes, it is legal. Don’t ever settle for the first no that you get — for any kind of deal — from a realtor, broker, attorney.

If I would have stopped the first time I heard somebody tell me no, when I asked if I could do a lease option or a double close or put a property in a trust or do subject-to’s or owner financing, I’d be nowhere.

I digress…

#1. One of the things that I teach about wholesaling lease options is that the tenant-buyer writes the initial option deposit check to an escrow company

And if you’re working with the right mortgage broker, they should know of a way to make that money apply toward their future down payment. They have to know the right banks to send that to. 

But several times a month, I hear: “My mortgage broker says you can’t do that.”

My response? Talk to more brokers. You will get a yes. My mortgage broker does it. My friends and students who do lease options, their mortgage brokers do it. Just find yourself one who does too.

Ok, here’s 2 more…

#2. Make sure they’re using the mortgage broker that you recommend — the one who said yes.

In the contract, never have a guarantee that it will apply to their future down payment. In my contract, I say that they get a credit for that money back, and that’s true. Because if they don’t use the right mortgage broker and the right bank, I can’t guarantee that money will get applied to them. It’s up to them to make sure they’re using the mortgage broker that I recommend. 

Think about it… in a normal transaction, you don’t make the check out to the seller. You make it out to the title company. There’s no reason they can’t make it out to the escrow company. Just because that’s outside the norm, doesn’t mean it’s wrong or not allowed.

When the tenant-buyer makes the check out to an escrow company, that company cuts you a check after the tenant-buyer moves in. That’s your ‘assignment fee.’

Again, you’ve got to make sure you’re working with a mortgage broker who knows how to do this… knows the right way to present it to the banks… and knows the right banks to present it to. 

Not every bank is going to allow it, so you need to find a creative, open-minded mortgage broker or banker who understands lease options. 

#3. If you’ve talked to 100 mortgage brokers and they’ve all told you, “No, you can’t do this,” then have the tenant-buyer make the check out to the seller, and then have the seller write you a check for your assignment fee right then and there.

Make sure it all happens at the same time! 

Explain to the seller what’s going to happen upfront from the very beginning, so they understand how it’s going to work. You say how much money you’ll make as your assignment fee, and how the tenant-buyer is going to make it work. 

Stay in control. 

You tell them in advance how it’s going to work and that it shouldn’t be a big deal. When the tenant-buyer writes the check out to them, then they write you a check at the same time — frame it as a simple paperwork exchange. 

Look…

Don’t let people tell you that you can’t do things. Find the more creative brokers who can help you as an investor. And it helps if you can find a local escrow company too. 

The best way is from referrals. Ask around. Start networking at your local REIA groups. Find people who do lease options in your town and ask them who they use. 

And you should be good to go. 🙂

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