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Updated 11 days ago on . Most recent reply

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Mona V.
  • Investor
  • Cary, NC
23
Votes |
58
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Rent-To-Own ques - deposit/term

Mona V.
  • Investor
  • Cary, NC
Posted

I have a house not selling so I thought maybe I should try Rent-to-Own on it. Read a book and whatever I could find online. 

Was curious what is the general deposit calculation pros on biggerpockets use for rent-to-own - 5/10/15%? Do you advertise this percentage, or it varies from applicant to applicant?

What is the general term of option contract (2/3/4 yrs), do you base it on their credit score (accounting for the amount of time they would take in fixing the their credit) ?

I also have a realtor currently for sale of the house with x% commission. If house is rented then commission is one month's rent How does it work with rent-to-own, since house has really not sold, same as rental?  

Thanks!

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Mitch Messer
  • Rental Property Investor
  • Playa del Carmen, México
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Mitch Messer
  • Rental Property Investor
  • Playa del Carmen, México
Replied
Quote from @Mona V.:

I have a house not selling so I thought maybe I should try Rent-to-Own on it. Read a book and whatever I could find online. 

Was curious what is the general deposit calculation pros on biggerpockets use for rent-to-own - 5/10/15%? Do you advertise this percentage, or it varies from applicant to applicant?

What is the general term of option contract (2/3/4 yrs), do you base it on their credit score (accounting for the amount of time they would take in fixing the their credit) ?

I also have a realtor currently for sale of the house with x% commission. If house is rented then commission is one month's rent How does it work with rent-to-own, since house has really not sold, same as rental?  

Thanks!

I avoid the term "rent-to-own" since some may confuse it with seller financing.

I think you're referring to here is a "lease-purchase" or "lease-option" (depending on the paperwork used).

If so, I've spent two decades doing EXACTLY these types of deals, and I LOVE them!

Here are my responses to your questions:

1. Upfront payment: We aimed for between an amount equal to 2 months rent up to 5% of the purchase price. This should be referred to as the earnest money deposit (for a lease-purchase) or option consideration (for a lease-option). Be careful NEVER to call this a security deposit, because it's completely non refundable if they don't buy.

2. Term: We gave everyone 1 year (regardless of credit score), with the opportunity to extend (at a higher price) if they weren't quite ready to buy when the term is up. We found that giving more time upfront didn't attract better qualified residents.

3. Commissions: I recommend not doing this with an agent involved, because you'll likely have to pay a commission on the rental AND on the sale.

Hope this helps.

Good luck!

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