Hello, beginner here, seeking advice on selling a house rent to own. I write the figures out and the numbers make sense to either make a nice lump sum at the end of the term or they back out and you've made money on the rental income. Here is what I figure and the numbers are just rounded off.
Obtain a home for 75k with no closing costs that needs no or only cosmetic work. True value would be apo. 100k.
Sell rent to own for a 100k and ask for a non-refundable lump sum up front like 10%.
If home would normally rent for $900 a month then ask for $1100 and the additional $200 can go towards the cost of the homes purchase to make deal more appealing to potential buyer.
So at the end of a year term the buyer would purchase the home for $87,600. That's 10k off 100k plus $2400 from the $200 a month.
In the option to buy agreement I would also state that the buyer is to pay closing costs.
So at the end of the lease agreement you sell the home to the buyer, at the agreed price, or you pocket the non-refundable 10k and the rental income that was earned. You can either negotiate a new contract or move on to something else.
This is a short summary of what I have written out put would appreciate some expert advice/ideas on this concept. Any and all advice is welcome but would prefer to hear from someone who currently does this or has before. A nice 3 bed 2 bath in my area is easily obtainable for 75k as well. As a new investor this is something that interests me but am just not entirely sure of the whole process.
Just check (and obey) your post-great recession state regulations. I know NC has some, and I think FL does too.
My first thought when I read your post was if a potential tenant has $10k and can afford $1100 per month, why don't they just buy the house. If it is a matter of credit, what will change in 12 months time for the tenant? I would think you would potentally have a supply shortage of qualified rent to own tenants.
My other concern for rent to own is contract or not, if the tenant can't get a loan in 12 months and you keep the $10k do you worry about ending up in court? You may win, but how much of that $10k goes towards legal fees. Tenants sue for a lot less.
Have you considered just renting it? Will it casflow well if you can't do rent to own.
Disclaimer: I have considered but never done a rent to own with any of my properties.
The posts I have read from Bill Gulley indicate that you should keep the lease agreement separate from the option to purchase.
You should charge market rate rents and not allocate part of the rent towards the purchase price.
The option to purchase simply provides the tenant the right to purchase the property at a fixed price within a period of time.
The rules for Rent to Own vary widely by state. So check your local regulations. I've done several rent to own deals. They've all worked out OK. But I'm not doing them any more.
I have two main reasons:
1) Only about 50% of buyers will actually buy the property. So in the end, half the time you've got to find a new tenant/buyer or you're holding a rental property, or you're selling it on the open market and hoping to get your number.
2) Your option contract is predicting a future value of the property. But if it doesn't appraise at that value, then it won't matter what the contract says. The buyer won't qualify for financing at that price. So in the end, you're speculating on the future value. I don't like to speculate.
I like deals where I can make money today, with today's value. If my success depends on market appreciation which I don't control, then I'm not in control of the outcome and my exit strategy is weak.
The only way that makes sense it to buy the property at a deep discount to the current market, and write the option price near today's market value. Then you're pretty safe. On the other hand, you would probably make more money just selling it in today's market.
Hope that helps. The voice of experience....
appreciate the advice! Yes it did help and the only way I would consider doing it would be to obtain a home at less than market value and to sell at market value. Something that I see happen quite often in the area in which I live.