Rent to Own??? can I use a tenant down payment for a loan???

Question

I have people coming up left and right to me now days wanting to rent and own,  they have bad credit, a stable job and they also have a down payment for a house, I get approach many times from tenants or people willing to give me 20percent to 30perecent want to rent to own from me, (I have a good reputation with peoples money, so a lot of people trust me) How would I structure this? Can I use this as a down payment for a house?  I see an oppturniy, I might as well take it and it would be nice putting families in homes, helping them achieve the American Dream!

Michael C. · Answer

@Joe S.

This makes sense, I probably should have a lawyer look over to be safe, I figured there has to be a way for someone to take over the house I’m buying with a mortgage, I’m using my own money for the down payment I got saved , already pre approved,  the new person who would take it over wants to give me a down payment and pay monthly to pay it off, wait owner finance ?or I can’t because it has a mortgage on it,

I’m just trying be creative and find ways to add value to people who asking me to help them own a house and they have the reserves for it, I see a market for it!

Joe S. · Answer

Having the exact language saying it’s not an installment sale or land contract could help maybe. Truth be told it’s really hard to predict what would happen in front of a judge.

Joe Villeneuve · Answer

If you are using the option consideration as a down payment, you just opened the door.  I can see why you are using that phrase then, but I would never credit the option consideration towards the purchase.  What I do in the case the option buyer wants the credit is this.

I agree on the price, then I subtract the option consideration from that price, and record the new price as the actual agreed upon option price.  That way, there's no connection, no formal/visible credits, but if the buyer actually exercises the option, they get credit for the O.C. because of the reduced price.

Dennis Wayne · Answer

@Joe Villeneuve

I disagree

The only payment on the option form is the down payment and that is non refundable and used to buy the option , the payment referred could be said it isn’t about monthly installments it’s any Money argued in court . You can choose to not add it I know I will because I personally know how judges especially liberal pro tenant ones look for ways to help them . I know folks who avoided this ruling by having that wording so I know for me I’m sticking with that phrase in my option

Steve Vaughan · Answer

Simply, yes.  You could sell your tenant the exclusive option to purchase your property.  They will give you consideration (not a down payment) and you can use that money to buy another house or whatever you want.

It seems you are combining the idea of the tenant-buyer (TB) giving you money to go and buy a house to RTO to them?   Getting complicated.   I guess then they would be a lender first, Optionee later.  I'd keep to optioning property you already own if RTO is your strategy.  Just dont use the words down payment when discussing options to buy later.

Dennis Wayne · Answer

In the option , it is to clarify that the tenant buyer and his attorney understand full well and good that this cannot be construed to be an  installment of any content and they initial that . I get what you are saying but It would be very difficult for a judge to rule that way legally when the tenant clearly agreed and initialed they are not participating in a installment sale . It could only help is my thinking and I know someone who won their house back on an appeal because of it who does 25 rent to owns so I’m sold . Even if it seems redundant , why not ? ,I want it as clear and concise as possible I don’t want that misinterpreted I don’t want the house going into a foreclosure situation

Joe Villeneuve · Answer

What do you think this allows you to do different than what I described above?

Dennis Wayne · Answer

@Joe Villeneuve

I have amended my contracts to have the wording

“ this is not an installment sale or land contract it is merely an agreement to excercise the right to buy the stated property and price above “

Something to that effect anyway

Joe Villeneuve · Answer

No. The tenant can't get credit for a Down Payment...there is no down payment. There is a lease, and a 2nd contract which is an Option Contract. The Option Contract gives the buyer of the contract (notice I didn't say "buyer of the house") the exclusive right to buy the property within a specific time period for a specific dollar amount. It is in no way any type or part of a purchase agreement. There is "no crying in baseball", and there are no credits given in a lease option.

Now, if they want to buy the property and they have money for a DP, then have them do a Land Contract with you.

Rent to Own??? can I use a tenant down payment for a loan???

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