Selling to existing Tenants? Questions & Processes.

2 Replies

Hi Folks!  I have a property with great tenants.  Their existing lease is up at the end of March, and I inquired with them if they had any interest in buying.  They just responded that they may be interested, and asked for a price.

I need advise around this process...

1. When setting up a lease to own, or an outright sale contract, are there are good blogs out there on this process?  What advice can you lend?  My understanding of this process is we would hold the "Mortgage/note" for the property, they'd pay us (part of the payment would go to our existing loan), and the rest would go to us, correct?  The tenant would then be responsible for all previously "landlord" items, including the Association fees for the unit, correct?  

2. Would I need a realtor/broker, or just an attorney to draw up the contract?

3. If I don't need a realtor/broker for the whole process, how would I figure out a "sale price?"  Could I send a gift card (ie. $40), to a realtor friend of mine to draw up the comps?

Hire a appraiser to assess the value of the property or minimum 3 real estate agents to provide a assessment. The appraiser will be more accurate. What you need is a estimate of the value at the end of the e RTO term. This is a huge gamble for the buyer if the markets turn in the interim. If values drop they may end up walking away from the purchase agreement.

You must hire a lawyer to draw up two separate contracts, one for the purchase and one for the rental portion of the contract. This will simplify eviction when they stop paying.

You must thoroughly assess their ability to pay and, assuming the are not eligible for bank financing, may also have to set them up with credit management. If you want it to succeed you must insure they will quality for bank financing at the end of your RTO term. Make the term maximum 3 years to get them in line and off your books.

At this time I would not suggest RTO and would prefer to simply sell it outright. If your tenants can not qualify for bank financing they would be out of luck.

I would definitely reach out to a realtor friend to put together comps. You can probably get a same contract from him as well.

I don’t quite understand the concept of rent-to-own, especially for existing tenants. They are already paying $xx/mo in rent. Would their rent go up? Or are you just acting as the bank for a few years?

The numbers in my head just don’t work out. I’d want to get 10-12% if I was giving them a loan for a few years, but I doubt they’d want to pay that much unless they really can’t get a loan elsewhere.

I’ll be curious what others have to say.

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