Posted by James on September 14, 2007 at 14:07:13:
…full price toward the purchase of the property. I’ve seen mortgage companies not credit them. Of course, why would you give them 100% deduction month for month when you are not getting 100% deduction when you pay the debt service?
I usually give 10-20% of the rental payment unless they excercise sooner. Then I give them a discount overall.
James
Rookie Question - Rent-to-Own - Posted by Greg
Posted by Greg on September 14, 2007 at 13:21:27:
Here’s what I know so far when doing a Rent To Own.
Assuming this is a 1 year deal.
The tenant gives a down payment of say 5K non refundable.
Makes payments for 1 year.
My questions is this, If the Tenant decides to exercise the Lease Option Agreement and buy the property,
Does the past 12 monthly payments and down payment get deducted from the purchase price?
I read that only the down payment is deducted.
Re: Rookie Question - Rent-to-Own - Posted by William Flood
Posted by William Flood on September 20, 2007 at 13:59:45:
Greg,
The answer is, it depends on what you both negotiate. Traditionally, in a lease option, the option consideration (down payment) gets applied to closing if they buy). Keep in mind that if they don’t buy you get to still keep it. It doesn’t need to be applied…as I said, that’s merely tradition, and good marketing to get the buyer to buy.
Then, lease options can (and mostly do) involve rent credits. Some people will try to boost up the rent to cover that, but in this market, you are probably going to have to charge within market rents and then offer the rent credit.
So, if they are paying $800 a month, you might offer a $150 rent credit each month the payment is made on time. That’s just paper money - it gets applied if they buy, but it evaporates if they dont. Again, you don’t have to offer a rent credit, but it’s good marketing to do so if you want to get the house sold.
And, the whole L/O deal helps you sell the property at todays best price. Some investors try to set the price of their property at tomorrow’s price, but that’s not likely to happen. And, it’s actually not copacetic to set the price based on appraisal in the future. In an option one is getting the right to be at a predetermined price…otherwise the option isn’t valid.
Feel free to email me to chat about this. It’s a technique I use quite a bit.
Re: Rookie Question - Rent-to-Own - Posted by Bill Jacobsen
Posted by Bill Jacobsen on September 14, 2007 at 15:09:54:
Like the others said, there are no hard and fast rules. The one year option costs something. You can charge what you want for it. If you charge $5,000 for the option you can price the house for $5,000 less than you normally would. You can credit $100-$200 per month to the purchase price if you want. I have done that. I have heard though, that if you do this some courts may decide that the tenant now has an equity position and you would have to go through a foreclosure process to evict them. I am not a lawyer and can only tell you what I have heard.
Good luck.
Bill
Re: Rookie Question - Rent-to-Own - Posted by Gene
Posted by Gene on September 14, 2007 at 13:32:39:
There is no hard and fast rules. Monthly payments…all or part can be applied to the purchase price. Even the “upfront option consideration” (I never call it a down payment) can go either way. Its all what the parties agree to.
Gene