This is the scenario. I have a listing on zillow rent to own. Purchase price being 94,000.00, They are saying they can put $50.000 down. As they have no job to qualify at bank for loan she wants me to carry the $44,000.00 note. Need suggestions on the best way to do this deal.
@Karen Moysi Please remember that when the tenant is lease-to-own, there is no note.
They will pay you $50k in NROC (non-refundable option consideration) and then if they don't pay, you evict them ... there is no note.
@Karen Moysi for clarity:
Lease-to-own is where you have a lease with the tenant, and every month they pay a small amount of NROC which slowly reduces the 'sale price' of the property until they've paid enough and they hit zero, or they get a bank loan for the remaining balance of the option and pay you off completely.
DISCLAIMER: there is a much more technical way to say this, but i'm trying to lay out the basics.
Thanks Jeremy. With the past 2 tenants afraid of hearing their big stories. If I do the Lease/Option for 12 months I want a note from the lender saying that they qualify. As I have qualified 2 out of the 5 year exemption for living in the property need to have it sold ASAP so as not to pay capital gains.
I would think if someone put 50,000.00 down on a rent to own maybe it would be better to sell on land contract. Any thoughts.
@Karen Moysi this is now a fun ethics question ...
it's DEFINITELY more profitable for you to do a lease option with $50k NROC up front. Then, if the tenant doesn't pay their rent and you evict them, you get to keep $50k.
It's probably less shady of you to sell to them with some sort of note-driven owner financing ... but then you have to hassle with foreclosure if they don't make their monthly, even though you know they have $50k in a pile somewhere.
Just to clarify, most of the people that I've talked to that operate using lease options would prefer a buyer give them $50k NROC on a $94k purchase and that the buyer have a letter from the bank saying that they most certainly do no qualify for a bank loan, because then in a few months, they can do it again with another buyer, and make even more money.
So the question becomes: How do you want to make your money?
The answer to which will dictate how you decide to proceed.