How does rent to own work in PA?

4 Replies

hey guys, I'm just getting on my feet here in lancaster pa. My first property is almost ready to start advertising for rent, but i was talking to one of the neighbors. They told me a good friend of there's was looking for a place, but they were hoping for a rent to own. Being fresh in the game, I'm clueless about how the rent to own process works. 

Good idea? Bad idea? Thoughts?

I would recommend having a real estate lawyer write up the terms of any rent to own contract. It is doable but there are so many finite details such as down payments, what portion goes toward equity, what is selling price, who is responsible for maintenance and upkeep of house during the period of time. Rent to own does not benefit the seller at all. Your better doing a leaseback where they are responsible for all maintenance and capex. Just my 2 cents

but is there a typical way to do it? So a portion of the monthly Rent goes toward the balance of the house? At what point would the tenant own the property?

I do rent with option here in WI so I'm not familiar with your state but I will say I like utilizing this type of strategy along with my other rentals and flips. I will agree to get a Real Estate lawyer for the contract. I use mine for each new contract. The basic way I structure it is two separate contracts which is key. One for the lease and one for the option. I require a non refundable option fee of 4%. Others may do more or less. Then I require all maintenance to be the tenants responsibility and for them to get homeowners insurance with me as additional insured. Also if you have a mortgage make sure they are on it as 1st Morgagee. Many will say not to do this in order to limit the possibility of the banks calling the loan due but I have never had an issue with that so its up to you. I think there's more of a chance of having issues with insurance if you for any reason have to file multiple claims. Anyways, I also do a set amount of each months rent towards the price but that only ends up being about $100 a month so the rest is profit minus the loan payment and taxes. Just my two cents on the matter.

cool Shawn. So, would you charge aditional on top of the rent? Or just use a portion of it? For example, if you wanted $1000 for rent, would you tack on that $100 and make it $1100? Also, that 4% is in addition to the security deposit? Do you apply the 4% and additional monthly payments to the balance of the house or keep it in escrow?

I'm seeing some of the benefits from going about it this way, but what would be some of my hesitations/draw backs?

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