Rent with option to buy

9 Replies

We have a co- op which we inherited when my father-in-law passed away. We have someone who wants to rent with an option to buy after one year. We were only asking for a security deposit and $1800./mo rent. Do we have to put any of the rent towards the buy? Does the person have to give us any money separately towards the buy when they sign a contract? thanks for your help.

In the rent with option to buy contract should include the purchase price and terms, you should ask for 3% down nonrefundable for the option, the rent is that just rent unless you want to portion some of it towards reducing the purchase price, up to you. if they don't preform the option the 3% is yours and you now have possession of the property to do it all over again.

Mike,

Thanks for stating everything so clearly. Great information.

Patricia

@Patricia Gemming ,

Definitely research this more and probably talk to an RE attorney who knows about these things in your area. I would not try to do a lease option on your own.

I don't know how things work in NY, I assume the property is in NY, but I have read that including a portion of the lease to go toward the down payment has allowed tenants to argue that they have an interest in the property and then the owner had to foreclose, yes FORECLOSE, on them to get them out. Definitely keep the lease and the option to buy separate.

I've got several students in the state New York and I used to live in Westchester County

Do not use an option contract

Use a lease and sale and purchase agreement

Qualified buyer by filling out a 1003 app and getting him-her t o aregistered mortgage loan originator

Draft escrow instructions

Standard 12 month lease in New York

Standard sale and purchase agreement with 3% nonrefundable earnest money

Date of occupancy is 12 months in the future

If tenant lessee fails to perform and get a mortgage by xxx date, the 3% is nonrefundable

See an attorney

Do not listen to real estate agents about lease purchase

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

Thanks for all the information. We do have an attorney, but wanted to understand the process.

Patricia

@Brian Gibbons , thank you for that information, i have a property in PA that this came up yesterday, i tried to sell a house but the sale fell through and now i am trying to rent it. someone came and looked at it and loved the house and had brought up the possibility of buying it,either getting a mortgage and buying it or they asked if i would consider a rent to own option. i have never done this and i am trying to get as much information as i can on this. one of the problems i have is that i do have a mortgage and by agreeing to this deal i believe it will trigger the due on sale clause. is there some sort of work around that will not trigger this that you know of ? i was also thinking of, if we didn't go that route and their mortgage rate was higher than what i have, what do you think of the idea of them assuming my mortgage and then they get a mortgage for the rest ? ( assuming the bank will do this)

Originally posted by @Brian Gibbons :

I've got several students in the state New York and I used to live in Westchester County

Do not use an option contract

Use a lease and sale and purchase agreement

Qualified buyer by filling out a 1003 app and getting him-her t o aregistered mortgage loan originator

Draft escrow instructions

Standard 12 month lease in New York

Standard sale and purchase agreement with 3% nonrefundable earnest money

Date of occupancy is 12 months in the future

If tenant lessee fails to perform and get a mortgage by xxx date, the 3% is nonrefundable

See an attorney

Do not listen to real estate agents about lease purchase

 Sounds about right! I have had advice they should be two separate contracts, so failure on one contract does not invalidate the other. Many judges see this as a predatory scheme. So be careful with this. In reality, 95% of the hopeful buyers loose their money. One big reason; they don't improve their credit record enough, or increase their deposit funds during the option period to -- qualify for a mortgage. However the lack of success by the hopeful buyer most likely is not the fault of the Landlord.

Originally posted by @Patrick Liska :

@Brian Gibbons, thank you for that information, i have a property in PA that this came up yesterday, i tried to sell a house but the sale fell through and now i am trying to rent it. someone came and looked at it and loved the house and had brought up the possibility of buying it,either getting a mortgage and buying it or they asked if i would consider a rent to own option. i have never done this and i am trying to get as much information as i can on this. one of the problems i have is that i do have a mortgage and by agreeing to this deal i believe it will trigger the due on sale clause. is there some sort of work around that will not trigger this that you know of ? i was also thinking of, if we didn't go that route and their mortgage rate was higher than what i have, what do you think of the idea of them assuming my mortgage and then they get a mortgage for the rest ? ( assuming the bank will do this)

 Use a lease and a ROFR instead of an option to buy

Get tenant to mortgage broker

Get tenant to bank for forced savings

Get tenant to FICO coach like www.upgrademycredit.com

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

@Brian Gibbons thank you for the response, but a couple of things, i see the ROFR still lets me get other offers for the property, but could that not deter other buyers if they see that purchasing the property is contingent on that, or prolong the sale to a 3rd party ? i also see there is a lot to consider to be in the contract with the ROFR this Article i found was pretty informative. have you used ROFR in your agreements ? If these potential tenants do come in ( i will find out either Monday or Tuesday) and they want to purchase the house, i will have them sign a lease to rent first then take it from there for the purchase agreement if they go that way, but will introduce them to my mortgage broker to see if they can work out a mortgage first before even entertaining this other direction. thank you for any time you may have in answering these questions, i will also seek an attorneys advice if it goes this direction, but i want to get as much knowledge on it as i can before hand.