The process of drawing up a real estate lease option for your tenant buyers involves a lot of steps. These steps are not hard to follow, but they can cause serious trouble if you forget one or get them out of order. The administrative assistant creates a manila packet with the information on what you need to have a closing. Once we have an approved application, we call them in and the administrative assistant often fills the paper work out before Kevin shows up. It makes sense. When I say we have a closing, the info is filled in and all anyone has to do is sign. All Kevin has to do is lay it out in front of them

We inform the buyer that they need homeowners insurance and that they will be responsible for the taxes on it too.

They can get their own insurance but they have a time advantage because we’ve already got a go-to insurance company. We’re in the sales portion on this so a lot of times they just go to our insurance person and pick up what we need there. It’s the same price that the tenant would get someplace else. If they want to go someplace else, we don’t care. We do it this way to make it easy on everybody.

Next up on the check sheet is to call the utility company. We have to make sure that the utility company can get them switched over and to get a final reading.

This is one thing that, over the years, has brought us some drama. Believe it or not, people sometimes move in and won’t put the utilities in their name. It gets old after it happens a few hundred times.

So we offer the option of setting up an escrow arrangement where they can make monthly payments and some of those costs instead. So we do escrow at times. I really don’t like to do that. I have done it a few times because this is a property that I bought into my IRA and I escrowed it there.

But normally we don’t like to do that because then we have to take care of the records. It’s just extra work. Remember, our systems are designed to alleviate some of the extra work.

Once the customer is taken care of, we set up a date for them to fill out the paperwork in the office. The administrative assistant will type up the land contract and the amount of the down payment as well as the purchase price.

In a nutshell, we do our real estate land contracts in the office just like we do the lease option. We don’t take them to an attorney and do them.

There’s times when we close on a weekend and the administrative assistant is not around. But it’s not a problem.

Kevin just handwrites the paperwork himself. We have the packets made up. All Kevin has to do is pick one up, fill it out, and go.

This packet that we’re talking about contains all the information and the documents that describe our payment schedule and outlines the responsibility to the tenant buyer. This description includes information on taxes and insurance.

We give the tenant documents that explain the importance of paying on time. We also stress the importance of timely payment during the closing session.

We want them to pay on time because we want to cash them out with a mortgage. If we have a good payment history, it is easy to close on the property.

With a land contract, we put them on an amortization schedule. This shows them the money saved by purchasing in twelve months. We don’t want them to go out and make a big purchase right before we get ready to close. We explain debt to income ratios to them. They might not be aware of how important it is to the mortgage companies.

We’ve also found that mortgage companies are going to ask for payment records. So we make sure they know they’re going to need to make the payments on time.

We also have mold and lead disclosure statements in the property packet. We have to keep the EPA happy on that one.

We also have a copy of the land contract or the lease option, depending on what we’re doing with them. They also get a copy of the purchase and sale agreement.

We always want the down payment in the form of a cashier’s check or a bank money order. One of the things I learned about the down payment early on is that when I’m sitting at a closing table and they come in, the first thing that moves is their money to me. I don’t want to fill the paperwork out and have them leave.

I don’t like the mental picture of that check sticking in their pocket and them walking out the door with my down payment. I don’t want to chase them for it later. So our system is for them to show me the money up front.

Some people are uncomfortable about asking for money and I was like that initially. I realized early on that it was good for everybody if I got the money taken care of and then we do the paperwork.

I’ve found that when we’ve done all the paperwork and everybody’s so excited about handing the keys over and we’re making sure we tell them about that they have utilities and the amortization schedule and all the other things we do, we forget to take the money. I do it first. This is a good system for you. You might want to put it on your check sheet. Mortgage companies want proof of payment and the preferred form has traceability.

As soon as they leave, we run copies of the paperwork and we make sure that they keep their copies too. If they want a copy we’ll give it to them at that time. Once they produce a check, we move to the documents just like I said.

Before signing anything, we go over the financial details and discuss the payment schedule. If they are smart about this process, they will make the payment on time. It will help them be able to buy.

We make sure everything is disclosed right up front. We let them know what we expect from them before we sign anything.

We make our payment terms clear. Our payments are due on the first, late on the second and then we add late fees. We charge 10 percent, plus two dollars a day.

Lease options need to be understood. Not all people understand this type of strategy. We want them to know that if they walk away, they lose all the money they’ve invested. We clearly describe our escalation clause.

We put what I call "teeth" into the contract. This means that they’ve got a year to buy the place. At the end of that year we’re going to take the rent up and we’re going to take the price of the house up.

We let them know that every year rents go up and typically the price of houses go up every year. We’re just protecting ourselves in case you don’t follow the plan we hope you’ll follow.

We sound like a broken record here, but the goal in our system is for the tenant to buy the house.

When signing documents we require that the land contract be signed by everyone over the age of 18 who will be living in the home. We get everyone on the application.

We’ve had issues trying to go after someone after the fact for damages and found that they weren’t on the contract.

As a rule, if the property is their primary address they need to sign the contract. After signing, we distribute the copies and hand over the keys.

Experience has taught us not to hand over the keys when the new tenant hits the door. We get the check first and then the paperwork.

We keep a copy of the keys and if they want an extra one, we give it to them.

We don’t try to be too much of a stickler on who gets one key or two keys. We just make sure that we have the extra keys that we need.

We then explain to our client that our mortgage liaison will be contacting them. It’s very important to have that position. Not everybody has it. You can have a leg up on your competition if you do have one. It’s been a big timesaver and money maker for me.

Make sure the tenant knows that you have a mortgage liaison during the closing session. It would be pretty strange and slightly disturbing to them if they have a knock on the door and open up to find someone saying, "Hi, I work for your landlord. I am his mortgage liaison. I’d like to go over your records."

The tenant might call the cops! It is imperative to let them know that you have a mortgage liaison and what that means.

We even have a magnet business card made that they get. It has one of our young women pictured on it. This way when she shows up, her picture is on the refrigerator and they know who she is. They know that she is not there to hinder them but to help them.

We put together a packet of information for the mortgage liaison. Then we have a basket in the office. We then congratulate our new tenant or tenants and we’re done.

We tell them everything up front. You’ve probably heard about buyer’s remorse. Well, we minimize that by letting them know what we do before they sign anything.