Investor · Gilbertsville, KY · Member since 2015 · 5 posts · 0 votes
Who has experience in rent to own or lease/purchase options in KY? Anytime I advertise a property For Rent, I immediately have numerous inquiries about Rent to Own. I like the idea of getting a decent down payment vs. a rent deposit. My attorney, however recommends that I avoid this since the local courts tend to look at this as a purchase, which could result in a lengthy foreclosure process when things go south. She advises that eviction is much quicker and simpler to implement. Is there a way to structure this in KY, so that I can get a down payment but avoid the lengthy foreclosure process, when the tenant is not able to close on the property?
I've looked at doing this too. I have a couple of tenants who have expressed an interest to buy the house. My thought was to do what Steve suggested, create an "option contract" and a "Lease agreement." The option contract will have the tenant give you a decent down payment - $3k-$8k, then the rest due after 2 or 3 yrs (length of time negotiable). Then, the balloon is due at the end of the period. The lease agreement spells out the rents only, separate from the Option contract. If the tenant doesn't come up with the balloon payment, you keep the "option amount" paid up front. Alternatively, You could consider a land contract, where you keep the deed, and sell the house via a land contract with a note (promise to pay) embedded in the land contract. You can charge a down payment for the land contract too. You set up an amortization schedule, and an interest rate and length of time. Once all payments are made, then you deed the property to the borrower. HOWEVER, I have heard that land contracts may not be legal in KY anymore? I am still researching this.
@Mike Howard Absolutely check with your attorney first, but I would see about doing a down payment or option to buy just do not under any circumstance call that money a security or rent deposit as it will fall under the security deposit guidelines. So do not call it "rent to own" simply give the tenant the option to purchase at the end of the lease for the amount you are looking for (the "fee"). If they are able to buy, that amount would come off of the total purchase price, if they do not that amount is kept by you. This will need to be a separate agreement though, since even though you may have to evict the tenant, the option to purchase still stands (per the fee they paid). I am not an attorney and anything I am writing is simply my opinion, please check with your counsel.
Thanks Steve for your thoughtful response. I like the idea of a separate agreement to purchase. I will certainly talk with my attorney about his approach, but that seems to be a viable method.
I've looked at doing this too. I have a couple of tenants who have expressed an interest to buy the house. My thought was to do what Steve suggested, create an "option contract" and a "Lease agreement." The option contract will have the tenant give you a decent down payment - $3k-$8k, then the rest due after 2 or 3 yrs (length of time negotiable). Then, the balloon is due at the end of the period. The lease agreement spells out the rents only, separate from the Option contract. If the tenant doesn't come up with the balloon payment, you keep the "option amount" paid up front. Alternatively, You could consider a land contract, where you keep the deed, and sell the house via a land contract with a note (promise to pay) embedded in the land contract. You can charge a down payment for the land contract too. You set up an amortization schedule, and an interest rate and length of time. Once all payments are made, then you deed the property to the borrower. HOWEVER, I have heard that land contracts may not be legal in KY anymore? I am still researching this.
I know this is a dated post, but would rather comment on one made then add another thread.
I couldn't agree more with Steve in the above post.
Have 2 separate contracts. A lease agreement that spells out lease terms. An option to purchase contract. Which spells out the terms to purchase including the non refundable option fee (deposit). Also helps to have the buyer initial where it states non-refundable.
Also, an assignable purchase agreement with the seller of the property of you are the investor. Had this hold up in court several times with ugly homes in the west end. Works every time. Highly suggest talking to an attorney that is familiar with investor related contracts and realestate deals. Same goes with a title company.