Rent Credits

[Michael Campbell]

What is the best way to structure rent credits on lease option deals? I understand that there may be dodd-frank issues there, but how does one create incentive for the Tenant/Buyer to where they are somehow chipping away at the price of the sale. Otherwise I am not really seeing alot of incentive for a Tenant/Buyer to do a lease option.

I mean, if you have to rent for now, why pay a substantial amount down, just to keep renting until you're able to get financing and have to pay another down payment?

I'm just playing devil's advocate here. I'd like to start structuring some lease options but I have to believe in it.

Thanks

[Brian Gibbons]

@Sydney Chase that is great!

There are some issues tho.

DOS Clause - 12 month lease with rights to renew will avoid the Due on Sale. You go over 12 months you have DOS issues. Rights to Renew is the way to go.

Rent Credits - there are 2 issues.  

1) Any rent credits will have Dodd Frank and the Safe Act come into play as a financing contract.  So see a RMLO on all Lease Options.  Underwrite the tenant buyer.

2) Any rent credits more than 20% will have the IRS determine this is not a lease option but a disguised installment sale.

Now Texas has different laws and @John Jackson is this board's expert on Texas Lease Options.

As to the OPs question, what incentive are rent credits?  Well if you have a good plan to assist the Buyer getting home financing, you may want to look at "Lease plus a Contract for Option".

Buyer gets the option when Buyer finishes the lease.  Like a Contract for Deed.

See

http://beta.biggerpockets.com/blogs/3-reiskills-an...

and search for Contract for Option.

And a requirement could be to save money in a savings account.

And also to see a Credit Coach like the one I use - Blair at

http://upgrademycredit.com/categories/

@Michael Campbell  Lease 2 Own, where you help a seller sell on Lease 2 Own, and help a buyer get a mortgage through Lease 2 Own is a good strategy.  You do need to know the basics tho of lease options, your local laws in TN (you might want to get licensed if you flip lease option contracts), and underwriting with Dodd Frank.