A potential renter is interested in a rent to own lease of a rental property I own ?

Question

Typically what percentage or amount of the lease to own option is used as building down payment monies. Any resources for what to include in one of these lease to own agreements ?

Answer 1

rent to own ties up your property until the tenant decides to either move or buy you out (or you evict him for cause), so you have to be very careful about pricing. I suggest that you prepare a spreadsheet and calculate the effective sale price and your internal rate of return on any proposed figures.

you also need to review the IRS regs about when you've effectively sold the property and how that affects your taxes. [While installment sale accounting defers most of your income tax until you've actually received the funds, depreciaton stops on the effective date of the sale.]

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terms are subject to bargaining.

I suspect the majority of lease to own deals are done by property flippers ... their needs differ from yours and so simply copying someone else's paperwork may not be a good solution. I suggest a local real estate attorney.

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It might also be prudent to write the deal as rent the property with option to buy over some period [i'd say five years or less]. This would let you keep the deal shorter than your "normal" sell the property date [because the tax status no longer fits for you] -- might be important in managing your tax situation.

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You'll want escalators in the rent to cover changes in property taxes and insurance costs, too.

Answer 2

2

Answer 3

These two lines really stand out to me: "we think we can purchase for $65K" . Are the two of you signing for this home so that you are mutually responsible for it's maintenance, upkeep, payments etc and both entitled to use it's income or equity as you see fit? "I will merely help with the down payment and monthly mortgage." Merely? Are the two of you putting in 50% of the downpayment and paying 50% of the mortgage together? If the friend is going to live there, what will be their contribution to this endeavor? Will they manage the property since they will be onsite? If you have a falling out will they move from the property since they will consider themselves part owner? This is a big step for you and it could be financially rewarding I just can't tell from what you have said why you need a partner? You qualify on your own to do this so what is the purpose for involving someone else who it appears cannot bring the same level of autonomy and stability to the table? Is your friend going to pay you for using this property as a primary residence? I would only do this deal if you were going to do it on your own. If you are leary of managing the property get a property manager to handle that for you. Tell your friend your fiance is really against the idea so you are going to put it on hold for now (in contracts this is known as deferring to a higher authority). You can still buy the house, just put a property manager between you and the renters so noone who is renting will know you are the owner. Once you have purchased the property, have an attorney transfer the owner name to an LLC that can be set up for you by the real estate attorney. Have the same attorney review the documents before you buy as well. Long story short, make a profit and save a frienship.

Answer 4

I have seen anywhere from 3% to 10%. The more the down-payment, the lower you should be willing to make the monthly payment; more importantly, a higher down payment shows a more serious interest in ultimate purchase.

You should definitely include clauses related to the following:

-What percentage of the lease/rent payment is credited toward the purchase price?

-Is the down payment refundable if the person chooses not to purchase? (Typically it is not, as the down payment is consideration for the option to buy.)

-How long is the lease before a decision to purchase, and financing arrangements, must be made? (Also, is this a renewable term?)

-Who is responsible for various maintenance, upkeep, etc., and who is responsible for major repairs needed? (Typically routine upkeep is on the lessee, and major issues are on the lessor.) Further, be sure to include a clause for transfer of all responsibilities at the time of purchase. It is usually assumed, but anything you can include in the contract is helpful in avoiding potential disputes.

-Any rules for permitted and non-permitted uses of the property while you own it need to be laid out. This includes pets, additional tenants, etc.

-Responsibility for renter's insurance prior to any eventual sale.

Hope this helps; try a google search or a trip to the local library (or law library) for more information.

Answer 5

I am in one now, for the last 4 years, with 1 to go.
$100.00 each month is towards the downpayment, which is about 15% of the rent.
I keep up the house and pretty much pay for repairs,which there havn't been any.I have pretty much treated this house as my own, doing a huge amount of improvements.

Answer 6

Yeah they all are, most don't work out for either party, as a Landlord you would want to get fair market rent for the place and any they would want to pay above that would go toward their downpayment, but since they could put that in the bank and earn interest. ,See how it doesn't really make sense for either party?
Most times it is either a landlord running a scam on tenants, or it is the tenants trying to get something for nothing.

Answer 7

There is no "typical." That is for you to decide. Whatever amount you decide will simply lower the price they end up paying, so why would you want to do that? For example, if theyare paying $1,000 a month rent today, and you let them apply $200 per month towards a down payment (without increasing their rent payment), after a year they have $2,400 towards a down payment COMING OUT OF YOUR POCKET. What is in it for you?

Answer 8

You'll need legal advice on this. UK contact your local CAB in the first instance.

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Answer 9

Remember most people have to rent until they can afford to buy with a down pmt. What I have done is rent at my going rate and allow them to set the amount over this to be applied as a down pmt. Until a down pmt can be made acceptable to a lending institution. Don't self finance unless you are filthy rich.

Answer 10

none if you don't agree.
most owners get a large deposit and set a price in writing and if tenant does not purchase house within a specific time frame then they lost deposit they move on and you can sale or lease out again