Lease Option Agreement ... Residential Real Estate

Hello, my name is Alex King and I have been a real estate investor for over 40 years.

Do you remember that last real estate bubble we were in? Of course you do. From my point of view .... it was great while it lasted.

I remember buying a house, doing a little repair and painting, then fliping it for a quick profit. Since it was a seller's market I would not have considered selling any of my residential properties using a Lease Option Agreement.

Today it's a little different... isn't it?
This depressed market reminds me of a time back in the early 80's when I owned property in the Phoenix, Arizona area. I remember people practically giving away there homes just to get out from under the loan payments.

If you know anything about Phoenix, you probably know where the
Metrocenter Shopping Mall is located. Metrocenter was the Phoenix area's first major 2 level mall, having been built in 1973. At the time it was built, it was the largest mall in America. Only a block away on 28th drive was a pretty little man made lake. Developers had built as many condos and townhomes surrounding the lake as was allowed.

Allow me to backtrack a little and explain the whole scenario. It was spring of 1978 and I had just sold a piece of property in Huntington Beach, California. When the sale was completed I was holding $65,000 and looking for somewhere to park it. I saw an ad in a real estate magazine for new condos on a lake in Phoenix, Arizona for $39,000.

My perception of Phoenix at that time was a hick town with cowboys roaming the streets. To find out that they actually had a lake in the desert and had these inexpensive condos built around the lake was intriguing, to say the least.

Long story short... My wife and I flew into Phoenix from the Orange county airport for the weekend.
In those days airfare was cheap and round trip airfaire was only $100 for the both of us. We returned home on Sunday afternoon very exited about placing deposits on 3 new condos and increasing our debt by another $100,000.

Ultimately we closed all three escrows and subsequently placed ads to rent the properties. It only took a month to rent all three of the condos. We were very lucky to be able to rent them for a little more that our expenses including taxes, homeowners dues and the loan payment. Our goal was to rent them for a few years and then go for the big bucks by selling them. You know about the best laid plans...right....

Now let's move forward to the early 80's. The real estate market had completely fallen and the timing to sell was all wrong, much like things are today. But, of course, when the economy is bad, that is usually when you need more money. So, it became necessary to sell off some of our property.

It was about that time when I first learned about a sales technique called a Lease Option to purchase. The more I read about it the more I realized that it because of the could work in my situation. I thought to myself...what do I have to lose? Why not try it? Seeking the services of a real estate agent was out of the question at that time. It would be hard enough finding a buyer without the additional expense of factoring in a commission. Beside that, we had been involved in enough transactions to feel confident in our own abilities.

I really wasn't sure about how I would structure the Lease Option proposal, but I knew that I wanted to test the waters and see if there was any interest in what I had to offer. I placed an ad in the newspaper to run for the weekend with the ad heading something like......... "Rent to Own .. No Money Down."

Saturday morning the phone rang off the hook. The response to my classified ad was overwhelming. As I think back now, I realize that I must have really sounded like an un-informed jerk since I was not sure of the exact details of my proposal.

I said to my wife..."We better figure out exactly what our needs are so we can convey them in an orderly manner to a prospective buyer."
At that point we knew we had better contact an attorney. We needed some advise and a valid Lease Option Agreement in the event we actually could pull this idea off.

The attorney cost us $100 for the office visit and consultation plus another $395 to draft the document. This was 1982 and the Internet was still yet to be invented.