Before you go and blow that nice lump sum of lease option money, read this…
It can feel good to have that money coming in and have ‘closed’ another deal but spending incoming lease option money can be dangerous.
There are good reasons ‘option money’, like rent deposits and advance rent and even a good portion of all your other real estate investing profits shouldn’t be spent.
Lease option money might be a little different (depending on your position) but real estate investors need to recognize that there may be occasions when it may need to be returned.
What if you can’t live up to your end of the agreement and sell? This is especially a consideration if you are in a sandwich lease option and the seller can’t fulfill their obligations.
It’s ‘Murphy’s Law’; anything which could possibly go wrong should be expected. It is those real estate investing pros which anticipate this and are prepared which stay on top. Perhaps the seller was unaware of a huge pre-payment penalty due on sale, maybe they fall into bankruptcy, something happens to the property from fire to a hurricane or liens with outrageous daily penalties have been building up and ate away all the equity.
If you blew that cash you could be in trouble…
Even if it isn’t your fault and you really may not have to return any funds or could fight for it, it may be prudent, in some cases to settle and avoid the long drawn out court battle, legal fees and bad reputation which could ultimately cost you a lot more.
So you might want to hold onto this cash and always work to build up a reserve fund. Note that re-investing it isn’t always a sure fire solution either, stay liquid.