Opinion requested on "rent to own" agreement.

4 Replies

Hey BP community! I'm re-posting this as I think my original post was not placed in the proper area.

This is the first time I am doing a rent to own on an out-of-state property I've been wanting to unload for some time now. The property is in bad shape and would be a good rehab candidate were it not for the fact that the property is over 2k miles away from me. I met a local agent a little over a year ago who helped me put the property in the MLS in order to sell it.

After quite a bit of time he found a buyer who was very motivated but has had trouble finding the money to purchase the house. He intends to live in it and fix it at the same time.

Earlier today the agent sent me the contract which I am including below for you to see. My questions come afterwards.

So here are my concerns:

  • CONTENT: The contract seems quite small and simple and I am not sure if some important clauses are missing.
  • DATE: The initial date is off already being dated on 9/15/16.... I believe based on what the agent has told me the buyer/renter is already in the property and has already been cleaning it up... Could he already be considered close to 60 days late given that I haven't received anything yet? Other than the purchase price, I haven't agreed to anything. I haven't even signed anything.
  • RATE: I don't know what the usual rate for these sorts of agreements is. It is not listed in the contract above other than this amount $804... This seems quite small for a 28 months agreement. I don't know how the agent came up with this but when I plug these numbers into a mortgage calculator from a 11k sale at 2.33 months term and with a $500 monthly payment I need to make the rate 21%. Not sure if:
    • that is considered too high
    • based on the numbers above, total interest paid is $3k

So I don't understand where the $804 dollars are coming to play but that seems too low for me wait over 2 years.

  • TAXES: Are currently $1,100 and listed only once. Renter/buyer has agreed to purchase the property with this "rent" payment however only one amount of $1,100 is listed. The term of this agreement is supposed to go over two years (end in 12/18) so I would expect another 1,100 for the second year plus one payment due this month.. Shouldn't that be included as well? Thus making it 5 tax payments of $550 rather than just two in the calculation ($2,750 instead of $1,100).
  • COLLECTION: What do you guys recommend to collect payments in a timely manner?
  • DEPOSIT: This being a "rental" should I require one? It seems that there aren't enough things that protect me in this agreement and a deposit would be one.

Any help with this would be greatly appreciated! Should I go with this or tell them to change anything? I personally don't feel too good about this as it feels that 1# I am not getting much for the property, #2 I am waiting over 2 years to get it and #3 I don't feel the numbers add up.

Thanks a lot in advance for your help with this!!!!

Don't take any chances @Patrick Boutin . Contact an attorney in the state where the property is located and have the paperwork drawn up correctly.

Thanks @Ruth Bayang . I understand what you mean however I am not sure how much an attorney would charge to get this done. Given that this property is so cheap I fear it would eat up a very large % of the sale price. If this was a 50k or as cheap as 25k I probably wouldn't think the same.

Knowing you are on a different market, do you have any ballpark figure on what this service could cost?

In light of the Dodd Frank Rules, I'm curious what others (ie. actual experts) might say about the legalities of this form of Contract. I would HOPE the Agent was on the ball about it, but, is he?

Other than those legalities, your main problem might be that you won't get to EVICT him if he reneges. You'll instead have to drag out the whole process by formally FORECLOSING on him - even if he stops paying after one payment! You DON'T want that!

What is more normally recommended is that a Lease is issued alongside a Purchase Agreement OPTION. The Option has it's own NON-refundable Fee, usually payable in advance. But then, it's always understood that NONE of the rent/lease payments go towards the purchase price - until the Buyer exercises their Option by getting financing and paying out the Seller - or, losing their Fee by just leaving or continuing to rent, or, renewing their Option with its new Fee. Thanks for asking...

@Patrick Boutin , I've had attornies in WA and PA draw up simple agreements for me (yours is a simple one). Cost me anywhere from $300 to $500.

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