Tenant-buyer wants to include extra down for repairs/improvements

7 Replies

I'm currently working out a lease option deal with a potential tenant-buyer that is willing to put 10k down towards the purchase price, but would like to add another $5,000 down to be used for improvements to the property like putting in an egress window and paint specifically. I believe they are drawing on their 401k or pension of some sort for this. 

Here's the rub. 

I have it set at 10k because that's pretty much the majority of equity in the house. I told them that, but they really would like something in writing so that they can draw 15,000 and have 10k go to option fee and 5k to egress and paint. I told them I wasn't sure if that was allowed and they said "there's a spot that says for purchase and repairs." I'm sure they could do it, but I'm concerned for them that they might get hit with some sort of penalty. Part me thinks I should just shrug and let them do whatever and see if they can get it and let them deal with the consequences if there are any, but the other half says "what if it comes back to bite ya?"  

Has anyone else done this and how would you phrase it so that it makes sense? I don't mind helping them out as long as it doesn't come back on me somehow.   

@Michael Lerch

Get an attorney that evicts tenants.

You are in MI

So go see a lawyer together in MI together.

Get a strong lease and a sale and purchase agreement, NOT an option.  This is a Lease Purchase arrangement.

Earnest money is $10K non refundable

Agreement to improve the property by tenant - see the lawyer.

Do not try to do this yourself.

@Marvin McTaw because $15,000 down would be a little over the principle balance and they're wanting the extra $5,000 to go back to them to use for repairs/improvements and not in my pocket.

@Brian Gibbons always good advice Brian. Yes, I make it sure it's non refundable, but this extra 5k thing is making it a bit more trouble than it's worth. I should probably just say... No?

Originally posted by @Michael Lerch :

@Marvin McTaw because $15,000 down would be a little over the principle balance and they're wanting the extra $5,000 to go back to them to use for repairs/improvements and not in my pocket.

@Brian Gibbons always good advice Brian. Yes, I make it sure it's non refundable, but this extra 5k thing is making it a bit more trouble than it's worth. I should probably just say... No?

I am still a little confused Michael. Are you saying that the current owners (i.e. the Sellers) want $5,000 for updates or the Tenant Buyers want $5,000 for repairs? My general rule of thumb on lease options is collect as much money up front as possible considering only about 1/3 of them ultimately go through especially if you're not making any additional ongoing spread (e.g. sandwich lease option).

And as far as the equity thing that you're referring to, I'm not sure how that's relevant? If they aren't purchasing for 12-36 months out, you, the tenant-buyer and owner have no idea what the value will be in that time period. Said differently $5,000 isn't going to make a substantial difference for most properties over the course of two or three years.

i'm gonna start a thread called " be the parent child relationship with the tenant buyer"

If you lose control of the tenant buyer as far as getting them to get the mortgage and pay the rent on time you have a big problem

If you are young and doing Rent To Own you can use appeal to a higher authority

Throw the property into a property trust and say 

"hey the trustee won't allow that ...

I'd like to help you with that, but I just can't let you do it because the trustee will not allow that"

If it were up to me…...

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