What you have heard is wrong. 

It is still legal to offer Lease to Own as a selling strategy in the State of Texas, but today the law is very restrictive. 

The Reference Manual for Lease Option Transactions under three years in the State of Texas was written to help you understand what you must do and how you must communicate with your tenants.

Written by Steve Davis, a Texas Licensed Attorney, Real Estate Broker and mortgage broker and Sam Maropis a real estate investor who has seen the many benefits of lease options. They have written a guide that is easy to understand and easy to follow.

Questions and Answers that help put all of this into perspective.  A Flow Chart to help you understand what must be done when – in language that you can understand. A Procedural Guide that breaks down all of the many different aspects of this law, so that you are able to stay in control.  Sample disclosures, helping you understand what needs to be communicated to your tenant buyers. The complete Texas Revised Statute covering lease options.

With so many methods available to finance borrowers who are buying real estate in Texas, lease-option contracts are just one means of establishing an agreement for financing real estate transactions.  What makes lease-options attractive to both the borrower and the lender is simple.  The buyer is able to buy a house without perfect credit and during the option period the buyer can repair most credit problems while proving to a future institutional lender that he, she or they can afford the payments, thus improving their credit standing while leasing the house. Generally the buyer is asked to put some money down towards the purchase of the house, so when they are ready to qualify for a traditional loan, there is some equity built into the purchase; some lenders also look at the new loan as a refinance rather than a purchase, which again may improve the borrowers’ chances to obtain a loan to place permanent financing on the house.  The lease-option seller is able to find a buyer without having to wait for weeks to have them qualify and be approved for a loan; there are usually more buyers available since they do not have to go through a formal loan qualification process of a bank.  Also, the lease-option seller is able to keep their carrying costs low if the buyer is making lease payments that cover any underlying note the seller may have on the house.  Other advantages for the lease-option seller are that they remain the owner and are able to deduct interest on the underlying note, depreciate the house, and if they hold the property long enough, they can possibly qualify to pay only capital gains tax rather than personal or corporate tax rates when they sell a house.

This Manual is intended only to educate and not give advice to the reader, so we of course recommend that you seek competent legal and tax advice before entering into any lease-option arrangement whether you are a buyer or seller.  We have only presented information that should prompt you to look further into matters that concern specific transactions, all of which have their own particular legal and tax consequences.

Because Steve Davis, who wrote most of the text of the manual and incorporated the amendments of the Texas Property Code into the existing Texas Property Code, is an attorney, real estate broker and a mortgage broker, he cannot ethically give any advice to a buyer or seller without having specific knowledge of each transaction and an agreement between him and the legal client, real estate buyer or seller, or borrower.  Sam Maropis, who wrote the Flow Chart and Guidelines for Notices, and generally helped with the edit, table of contents and index, is a real estate investor who is a board member of the San Antonio Real Estate Investor Association; Mr. Maropis felt there was a serious need to understand what was changing in the Texas Property Code due to the fact that many investors with whom he has come into contact are or were either using or considering using a lease-option method of sales for their investment properties.  Since there are very serious punishments for failure to follow the Texas Property Code requirements and since the lease-option method of selling properties in Texas was benefiting so many buyers who would not otherwise be able to own a house, both Mr. Davis and Mr. Maropis decided this Manual would be helpful to all.