Rent to own Questions

3 Replies

Hello BP, is it possible to do a lease option to buy on a single family home when you still hold a mortgage on the property? thanks

If you hold a traditional mortgage - FHA or conventional - yes you can but do 12 months at a time. Tell the tenant buyer you will extend it if they need more time.

Get 3% down.  

Sell at current appraisal. Get a new appraisal or a CMA from agent.

Get 1st and last rent.  Charge market rent.

Use a servicer like  

Get the tenant to a FICO coach like , worth the money.

Tips to prevent a lease option from being a sale, these are IRS tips:

1. The rent should be at or near fair rental value. Breece Veneer & Panel Co., 232 F .2d 319. Get a written opinion of the rental value from a qualified real estate professional.

2. Keep rent credits toward the option price to a minimum. Generally, 20% or less is considered reasonable.

3. The option price should be at or near fair market value. Get a written opinion of the market value from a qualified real estate professional. Breece Veneer & Panel Co., Ibid.

4. Try not to tie-in substantial lessee improvements with the option exercise.

5. Do not pass legal (or equitable) title to the optionee\lessee\buyer.

6. Demonstrate that you intend to do a lease-option and that you believe the rent and option price to be reasonable. See Benton, 197 F.2d, 745; Lester, 32 TC, 711. Use arm's length lease-option documents along with the counsel of qualified professionals.

@Bill Gulley has an option to buy course on his site.

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Forget #s 2, 4, 5 and 6 above!

Forget "lease-purchase" contracts, you don't need them and they will lead to problems in future financing and ultimately violations of law with tenant-buyers. :)