OFFERING RENT TO OWN DEALS? Smart?

30 Replies

- Did you use a lawyer?

- My house would get 70k if I sold it tomorrow

- What can I get within the rent to own final sale price?

- Useful websites to help me complete a rent to own deal to a CLIENT?

- Should I allow rent credits to go towards final price?

I have not used a lawyer for our seller finance deals. 

I would have them sign a "master lease", "contract for deed", and a "promissory note" for 20k over appraised value. Put it on a 20 year am at 9% interest and require 10% down. (If they can't do 10%, you can go as low as 5%)

Require at least 4 x payment for income. 

Sell the note in 12 months if they pay it on time.

@Cameron Riley I have limited experience with this, but did sell my first rental property in this manner.  I used an attorney.  I only did 10 years with 20% down.  They refinanced 2 1/2 years later.  It was a good deal for us. 

@Garrett Hawk I like your suggestion to sell the note about a year later if payments are on time.  Can you please the 20k over appraisal?

@Garrett Hawk

This is great! Thanks!

Probably won’t do it this way, because I feel as if may be way to complex for the properties and clientele i am working with/in

But it’s amazing advice still.

Thank you

Again!

When was the last time you did this? ( rent to own with a client )

Originally posted by @Cameron Riley :

1- Did you use a lawyer?

2- My house would get 70k if I sold it tomorrow

What can I get within the rent to own final sale price?

3- Useful websites to help me complete a rent to own deal to a CLIENT?

4- Should I allow rent credits to go towards final price?

Answers to the above questions:

1 - No...never had to

2 - Don't know.  Not nearly enough info.  Besides, you will also be getting rent/cash flow which adds to your profit...and could allow you to sell the property for less and still make more profit than if you just sold it at full price.

3 - Many.  Just Google Lease Option

4 - No, NO and NEVER!!!

The lease and the option to buy are two separate contracts.  You never mention one in the other.  The Lease agreement is the same as any other lease agreement.

The Option to Buy Contract is just that...and ONLY that.  The Option Consideration you pay for that Option Contract is 100% of the cost of the Option Contract.  The Option Contract is an Option to Buy the property...period.  It give the buyer the right to buy the property within a given time period for a said amount.  It is NOT a down Payment on the property and it is NOT to be credited towards the purchase as a DP would be.

If you give rent credits, or OC credit towards the purchase, any really bad lawyer can (and probably will) turn it into a Land Contract agreement...which means, ALL of the rent payments and the entire Option Consideration Payment will be credited towards the purchase.

If you want to give the buyer credits (OC and part of the rent) here is how you do it:

1 - Agree on the rent/month and the Purchase Price.
2 - Then, after you have agreed to #1, agree how much of the rent you would like to credit.
3 - Add up all the potential credits, and subtract the total from the Purchase Price in #1...this is the official Purchase Price.
4 - V. Important.  Make no mention at all of this reduction in writing ANYWHERE.  All you are doing is reducing the final price to the dollar amount your buyer would have to come up with anyway if you did give credits...which you are NOT doing here.
5 - The Rent doesn't change, but the final purchase price does.

You get what you want, and your buyer gets what they want.

Remember, these are two separate agreements and you should NEVER mention, hint at, lean into cause a shadow over or in any way connect or open the door to a connection between the two contracts...ever.

@Joe Villeneuve If you are just reducing the final purchase price by your desired rent credit total, what happens if your T/B wants to exercise their option sooner? Is there a way to prorate it to when they exercise? 

For example, if you offer 200/month for 36 months = $7,200 total, but they buy at month 12, then you just lost $4,800 compared to doing a regular rent credit monthly.

First, I would never offer an option longer than 12 months, which would mean a maximum reduction of 2400 total.  So if they exercised their option sooner...such as 8 months (sooner than that would be very unlikely), I would be giving away only 800.  Big deal.  If that is a big deal to you, then the deal itself shouldn't have been made.

Second, well, I guess there is no second then.

@Joe Villeneuve

So if the option contract has a purchase price of say 105k and you get an option of 3-3500k. If it shows purchase price of 108k and 3k is credit towards the purchase price, you don't like this?

Consideration: In exchange for this Right, Grantee has paid Grantor $3000 and other valuable consideration. This consideration money is non-refundable.

Reason I ask is it would be good for the buyer to be able to have the consideration money count as a down payment in the eyes of the underwriter or loan officer?

Originally posted by @Chris DeSisto :

@Joe Villeneuve

So if the option contract has a purchase price of say 105k and you get an option of 3-3500k. If it shows purchase price of 108k and 3k is credit towards the purchase price, you don't like this?

Consideration: In exchange for this Right, Grantee has paid Grantor $3000 and other valuable consideration. This consideration money is non-refundable.

Reason I ask is it would be good for the buyer to be able to have the consideration money count as a down payment in the eyes of the underwriter or loan officer?

 No I don't like it.  The Option Contract is just that...a contract that gives the buyer of the Contract the exclusive right to buy the property during the stated time period for the stated amount.  The Option Consideration, is 100% of the cost of that Contract.

Underwriters won't count the OC as part of the DP since the Contract isn't part of the purchase of the property.  It just gives the owner of that Option Contract the right to buy the property mentioned in the Option Contract.  The Consideration (cost of the Option Contract) is what that "right" costs.  When the term of the Option Contract is up, the right to buy is also up.  The Contract has been fulfilled.  The buyer of the Option Contract got what they paid for.

This is why if you want to give the buyer the credit they want, simply reduce the purchase price by the amount of the option...making no mention of this in any document.  Just set the Purchase Price at the lower amount.

@Joe Villeneuve

Then the seller isn't getting the asking price of 105k, they are paying a you in a sense, kinda/sorta?

I've heard (or read) that there are ways to get the option fee/consideration/whatever else you want to call it applied later as a down payment for the buyer? Not all lenders will but some will is what I understand.

@Joe Villeneuve

Also, the option contract is what the underwriter would see, no? Giving a paper trail that the owner got consideration for the option? As the investor putting it together, I have an addendum that all the parties agree to that I will be paid and it refers back to the option contract as the "consideration" for the first right of purchase (OC).

Not sure if I explained that just right..

Originally posted by @Chris DeSisto :

@Joe Villeneuve

Then the seller isn't getting the asking price of 105k, they are paying a you in a sense, kinda/sorta?

I've heard (or read) that there are ways to get the option fee/consideration/whatever else you want to call it applied later as a down payment for the buyer? Not all lenders will but some will is what I understand.

 The seller is getting the Option Consideration and the recorded AP added together = the $105k

If you find a lender that will count the OC as part of the DP in this situation, let me know.

Originally posted by @Chris DeSisto :

@Joe Villeneuve

Also, the option contract is what the underwriter would see, no? Giving a paper trail that the owner got consideration for the option? As the investor putting it together, I have an addendum that all the parties agree to that I will be paid and it refers back to the option contract as the "consideration" for the first right of purchase (OC).

Not sure if I explained that just right..

 The Option Contract is an agreement between the property owner and the signer of that agreement that gives the right to the signer of the agreement to buy the property during the stated time period for an agreed upon price.  That agreement is self contained, and is not part of the Purchase Agreement.  It simply sets the terms for a future PA, if the Option in the Option Contract is exercised by the buyer of the Option Contract.

If the Option isn't exercised during the term of the Option Contract, then the Option Contract has run its course, and is no longer in effect.  The Buyer of the Option Contract has gotten what they paid for...the first right of refusal to buy a property during the term of the Option Contract for a set price.  The Option Consideration is 100% of the cost of the Option Contract

What you can do is when the tenant/buyer is ready to buy or exercise his option to purchase, you draft a purchase agreement stating that the buyer has put a downpayment. The mortgage broker sees the Purchase contract not the Option contract.

Originally posted by @Michael Ealy :

What you can do is when the tenant/buyer is ready to buy or exercise his option to purchase, you draft a purchase agreement stating that the buyer has put a downpayment. The mortgage broker sees the Purchase contract not the Option contract.

Can you explain further?

We recommend that you use a lawyer for all deals to make sure that you are protected.

Maybe a $82k Purchase Price?  No set thing but you can round up a bit.

Advertise it both on "for sale" and "for rent" websites

check out our website, we have a 60 minute webinar on there that's loaded with content that you can learn a lot from SmartRealEstateCoach.com

Hope that helps,

Chris Pre

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