Legalities of Lease Options with John Jackson

Today’s guest on the REI LIVE Podcast is the lease option king, John Jackson.

With previous experience in stock options, when he got into real estate he chose to pursue the creative avenue of lease options. In this episode, he talks about three different types of lease options and the benefits for investors in all three. Brian and John also talks about some of the legal implications of these types of lease options, and the best way to navigate this type of investing.
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Lesson Modules on How to buy rentals and how to perform a lease option: https://www.youtube.com/playlist?list=PLRLOw-cBCc_EOPk3l1-n25rRyz_Ez_QPa
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Key Takeaways:

[2:15] John does lease options mainly in Texas, but all over the U.S., as well. He started a company, Leasing to Buy, in 2003. One of the most important things for him entering the real estate market was finding his niche, and recognizing that all markets are cyclical.

[4:45] His company takes the essence of lease option and puts the pieces into place so that it’s a win-win for everyone.

[5:23] John talks about the best time to do a lease option. The absolute best time for lease options is when the market is pulling back. As the market softens up, properties that are slightly above the median price range feel the pain first.

[8:30] John shares some specific examples of the price range of houses versus days on the market. The higher price range houses tend to stay on the market longer.

[10:05] John and Brian talk about the different types of lease options — straight-lease option, sandwich lease option, and wholesale lease option.

[11:40] The sandwich lease option is when you as the investor stay in the middle. The investor negotiates the option price and monthly payment with the seller, and then you market it as a lease option to another buyer.

[13:25] At Leasing to Buy they specialize in the wholesale lease option or lease option assignments. In a lease option assignment, you work with a property owner to give them full price, and then you market the contract to a new buyer.

[18:20] Most people are familiar with the sandwich lease option, but the straight lease option is more for someone who might want to hang on to a property long-term.

[20:45] Brian and John talked about different ways you can use a lease option as an investor. You can do things like Airbnb, student housing, or assisted living without buying the property, but controlling it through lease option.

[23:45] John talks about the difference between a lease option and a subject to or a seller finance deal. It depends on the seller who currently owns the property and how badly they need to sell. As a buyer, it’s typically more advantageous for the lease option because you can secure the property for a lot less money.

[29:05] There’s been a lot in the news about the sandwich lease option, about the legality of people moving through tenants quickly in a lease option. John talks about different ways investors can safeguard against getting into trouble by running a reputable and ethical business.

[31:25] No matter what state you’re practicing in, one of the best things you can do for real estate is to read and understand the law yourself. In Texas, you actually can’t do a sandwich lease option.

[35:30] Instead of the sandwich lease options, there are a couple of other options. You can acquire the property subject to, and then lease option it, or you can do one of the other lease option types and rent it out.

[38:15] John talks about different qualifications for a real estate attorney. It’s important to make sure they really do specialize in real estate, and it is favorable if they do litigation. You may also ask which type of real estate investing they specialize in (residential versus commercial). Ask for references!

[42:50] One of the best things you can do to protect everyone in a sandwich lease option is to cloud the title so someone can’t steal the property out from underneath you or the end buyer. You can also use a servicing company for the payments.

[44:15] To get in touch with John, visit www.leaseoptionclasses.com or his Facebook page.

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