Wholesaling lease options in texas
I've never seen anyone do one correctly. In light of Texas law, this one of those "creative" financing ideas pitched by seminar guru's that sounds great, but is not practical in Texas.
If you find an attorney in Texas willing to properly paper such a transaction, more power to you, but the liability and risks extend beyond merely drafting the documents. There are accounting and reporting requirements that are ongoing throughout the terms of the arrangement. While the seller bears most of the risk in such a transaction, doing business with a seller who is willing to take this risk, whether they are aware or not, should also be an indicator of future interaction with the seller.
What other laws and duties are they willing to ignore or not care enough to investigate. I would also like to add that I see new investors or investors with small portfolios structuring complicated entity structure like Limited Partnerships with corporate general partners, or forming trusts etc How much does it cost and how much time does it take to properly establish such a structure and what on the ongoing expenses?
Drafting resolutions for each transaction, corporate minutes, annual meetings, maintaining separate bank accounts and bookkeeping for each entity, tax preparation, franchise taxes filing and payments I see many wise investors who buy in their personal name or in a single simple LLC and buy insurance to protect themselves from liability. Consider general liability and umbrella policies to protect you rather than a complicated entity structure that requires ongoing expense and attention.
Get you operation off the ground and streamline it later. Use your cash and time to find deals and generate cash flow. Also make sure the owner gives you the mtg.
I'm not crazy about David Willis's website as he is confusing a lease option for a contract for deed. Also, contract for deeds are almost unheard of after the tornado of may that wiped out a number of contract for deed properties and the investors weren't carrying insurance. That is when an attorney I know won't disclose his info here worked with Mike Moncrief to tighten the laws of a contract for deed.
Brian Gibbons Those are helpful links. Thank you very much. Lock We hate spam just as much as you. If you signed up for BiggerPockets via Facebook, you can log in with just one click! Log in with Facebook.
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Get the book now. Real Estate Books Shop books covering real estate investing and personal finance. Real Estate Forms Leases and other legal documents for landlords. Additionally, it is required that sales advertisements disclose the availability of water, sewer, and electric service. The seller must provide a thorough disclosure of the financial terms of the transaction, including the interest rate, amount of interest charged for the term of the contract, the total amount of principal and interest to be paid, and the non-existence of a pre-payment penalty.
Excessive late fees and pre-payment penalties are banned. Even if all the foregoing statutory requirements are met, the buyer may still cancel an executory contract for any reason within 14 days of signing.
Accordingly, an investor should not avoid utilizing a day or less lease-option if it is appropriate under the circumstances — particularly if there is a fair possibility that the option could be exercised during that period. Also, if the parties decide in good faith to renew the option for another short option term, they should not hesitate to do so. In this context, we recommend using a day option term just to avoid any issue about whether or not the statute has been violated, since it is never a good idea to cut matters too close when dealing with legal deadlines.
The answer is likely yes , so long as the term of the option fails to be expressly limited to days or less. Since the lease can easily extend for longer than days, the option can as well. Accordingly, a court would most likely find this arrangement to be an executory contract.
What about the possibility of stacking six-month option contracts—i. This would appear to be a loophole, making stacking a possible way for a very aggressive investor to still do a lengthy lease-option without complying with the executory contract rules, although at some risk.
No challenge, no issue. There are no executory contract police. Having said that, lease-option arrangements that endure in the aggregate for longer than days are perilous. All preferential rights to real estate, including lease purchases and lease options, must be express not implied and be in writing in order to comply with the statute of frauds.
There is another statute that is applicable: Property Code section 5. Preferential rights often cross the line into the zone of executory contracts, and the result has been to greatly inhibit their use in buying and selling real estate. Burdensome requirements and stiff penalties applicable to executory contracts cause sensible investors to avoid them.
Many real estate lawyers will not do them at all, since failure to comply with even the smallest requirement may trigger significant liability not just for the seller but also for the attorney preparing and filing the various disclosures and documents. Why not just evade the executory contract rules and march merrily forward? The reason is that courts and juries generally do not favor investors and landlords, who are often perceived as profiteers preying upon the weak and unfortunate.
It often does not matter how clever your legal argument is. Underestimate a jury of 6 or 12 of your peers at your peril. These forms are suspect since they may not be designed specifically for Texas. They can now get an investor in real trouble. Often these forms are options with a different title. However, courts look to substance over form; and remember, courts do not like investors. A judge and jury will likely be angry with a seller who tries to pull a fast one with overly-clever verbiage — and more inclined to consider a finding of fraud.
Lease-options are now a risky business in Texas. The net effect of the burdensome requirements and stiff penalties applicable to executory contracts has been to greatly inhibit their use. Sensible investors avoid them. Most real estate lawyers will not do them at all, since failure to comply with even the smallest requirement may trigger significant liability for the attorney preparing and filing the various disclosures and documents.
Find a good real estate lawyer, one with courtroom experience. Pay attention to what he or she says about how a judge or jury will react to your proposed deal.