Why ALL landlords MUST use Rent to Own / Lease Options
First of all, for those who aren't familiar with this concept. Rent-to-own, or more formerly called a lease option. This means the tenant is also the buyer, what I like to call a tenant-buyer. They are going to rent the property just like a regular renter but they have a vested interest and plan to purchase the property at, or before the option period is complete. This typically ranges anywhere from 2-5 years. By this time, the buyer has improved their credit, earned a buyer's credit (typically 25%) and equity in the home. The bank is much more willing to give them a loan, at this point.
For most sellers, it sounds like a scary proposition but it is actually a very common practice. In fact it is included in most lease agreements, it's right beneath the terms of the contract:
The screenshot is from a form created with:
"Wait a minute" you say, "it sounds like the tenant-buyer has all the fun!" *buzzer sound* Wrong!
Here are the benefits to the seller:
- Low maintenance-
- It's the tenant's responsibility up to $300/mo.
- That's just an example, many people opt for more, or less, it's up to you!
- Less incidents-
- The tenant treats your home like their home so less damage is done to the property, overall.
- They settle in and take pride of ownership.
- More rent money-
- You are acting like the bank so you set the terms and add interest as you see fit.
- They are willing to pay more than market rent because you are doing them a favor.
- More upfront money-
- Instead of a refundable deposit, you get an option payment!
- This is a non-refundable amount (more than twice the rent) just for considering a RTO.
- More backend money-
- Again, you have given the buyer an opportunity they would not have had without you, you can charge what the property will be worth, most people figure 5% annual growth.
- All you are giving them is 25% as a buyer's credit towards the end purchase.
And the list goes on and on...
However, I see there are still skeptics out there saying, "I could just sell it for all that trouble."
But, before you settle for that option consider this:
Traditional sale-
A house is on the market for $100,000. Let's say it could even sell for that minus 6% for agent fees, 3% for tax and title and another 1% for closing costs. You are at $90K for your $100K home. That's not even figuring in marketing and the time it takes to sell it.
Landlord route-
You can rent it for about $750/mo (market rent) depending on where you live. Assuming a 5% annual raise in rent, you'd be getting about $28K over 3 years. You have to fix every little maintenance problem that comes up. Conservatively, you can assume about $5K over 3 years and that's assuming nothing goes haywire. Now, you netted about $23K minus your mortgage insurance and taxes. You are somewhere around $20K for 3 years and had to deal with a tenant. Heaven forbid, the housing market has taken another dive and your property is upside down, again...
Rent-to-Own-
You can rent it with an option to buy and your tenant will pay a premium for the opportunity. They will treat it like their own causing you less aggravation and damage. Don't forget the maintenance is covered up to $300/mo!! No more maintenance! That's worth at least $5K over 3 years, probably more. Also, you can get $950/mo instead of the market rent of $750. Then, after 3 years of collecting a lot of rent, they cash you out at FULL price! 15% more than it was worth 3 years ago. It's recession proof!! Let's add it up: $31200 rent less mortgage insurance and taxes + $1900 option payment + $5000 no-maintenance + $107800 sale less buyer's credit = $145900!!
As you may know, I went to school for a long time but I am not great at math. But rent-to-own adds up to me!! I will choose RTO all day long!
Are you a seller?
I have pre-qualified buyers lined up to rent-to-own your home!
Ready to make some money?
Thanks for reading!
As always, sharing is caring
Jen "Doc" Chandler
415-SELLIT5
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