The One Thing You Should Never Accept

As we have discussed in previous posts, the goal of any real estate investor is to have your property cash flow. This can only be accomplished by having your tenants pay you on time and in full each month.  Many investors choose to market their property to first-time homebuyers who may have bruised or damage credit and they sell the property on  a lease option or on a land contract (contract for Deed).  

A lease-option or land contract with a balloon has a maturity date in which the buyer is expected to purchase the home for a pre-agreed upon sales price.  If the buyer has had bruised credit, one way to help make the tenant more credit-worthy is to prove that during the term of the land contract or lease option they have made all monthly payments on time and in full each month. In order to help your tenant cash out on the land contract or lease option and obtain bank financing, you must NEVER accept cash for their monthly payment.

It is extremely important that the buyer can document to the bank that she has paid on time. Rent receipts are unacceptable.  Money orders won't work either. These documents are rejected because the lender knows that anyone can write a rent receipt and copies of money orders can be created fraudulently.

There are only 3 types of rent verification that a lender will accept: copies of cancelled checks, copies of cashiers checks with the tenant as remitter (not money orders) and rent letter from a management company.  The management company option is the least preferred because the management company typically has a vested interest in getting the client financed so this should be used as a last resort.

The easiest way to collect is to have your tenant-buyer set up an ACH/checking account withdrawal.  This way, you have proof of payment, the tenant has proof of payments made and the bank will accept this proof without any hassle.