Lease to own risks and advice please!

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We have potential renters who want to lease to own. They can afford the monthly payments but don't have the downpayment for the house saved yet- they have a plan to do so in the next year.

We offered to allow them to rent at a lesser rate for a year (to help them save for the house) and they be responsible for small repairs and at their lease renewal we touch base and see if they want to buy. They really want to lease to- own, however, and set the price now with an addendum if it greatly appreciates or depreciates. We are in a greatly appreciating market.

The red tape worries us about lease to own (and the headache). But we don't want to pass up a good opportunity (we plan to sell it in the next few years) because of ignorance of this process.

Thank you so much for any insight or experiences you might share!

Lease Option/Purchase is a great strategy to buy and sell houses.
Just make sure that they are two separate documents and you cover your base with good contracts.

You can read more about Pros and Cons on my website.

If you want any help, do not hesitate to contact me.

-Abhijeet

I have pending renters asking for something similar.  I told them I am open to offering an option to buy after a year (just bought it).  In the meantime, they will pay regular market rent and I'll see how they do. 

I would guess over 90% of regular renters don't know about or fight for a rent to own arrangement in the beginning. I think you are dealing with an investor in disguise.

Mine are married in their late 30s and are a year or so from qualifying and truly want to purchase their first home. Zero chance they are trying to sandwich or assign their option.  You may go over next month and find someone living there you've never met that did some deal you aren't aware of.  

However, if you do want to offer a lease with option to buy (not RTO), then do it with separate agreements: a regular lease at market and an Option to Purchase. For the exclusive right or option to buy at a certain price for a certain amount of time, consideration or a fee must be paid called option consideration. Consideration is non-refundable.

Make sure the option is NOT assignable or assumable to prevent above mentioned scenario. Sandwich lease options (SLOs) are illegal in TX btw. Won't prevent an unscrupulous investor from doing one under you though. 

There's more to it of course, just research BP for lease options for more info!

​wow that’s so interesting! We have so much to learn im afraid- grateful for bigger pockets.
I think there is a chance of both. They are mid 20s wanting a house in our neighborhood as their first house. He is also a real estate agent, however, so there’s is possibly a chance for the above scenario?

Hi @Victoria King

If you "lease to own" the property to them without a strong enough down payment (has to be above and beyond what it would be for 1st, last and security deposit), you risk having a nightmare tenant that is going to trash the place.  Every time we have gotten a little too lenient with the down payment, we had a headache months-years down the line.

Hope that helps,

Chris Pre