Rent to Own Strategy--is it complicated?

[Chandra Faulk]

We are considering using the rent to own strategy with our newest deal, a 2 bed, 1 bath. What are the pros/cons of a portion of the monthly rental amount being applied to the final purchase price, vs. no credit of monthly rent towards eventual price?How do I decided on length of term...2 years, 3yrs or more?

Is there a demand for this type of strategy in Oklahoma?

[James Atkinson]

Hey Chandra, applying part of the rent toward the purchase price motivates buyers by helping them build equity. However, if the buyer opts out, the seller loses that credited amount. Without rent credits, the seller retains all rental income, but the deal might be less enticing to buyers. A 2-year term works if the buyer is close to mortgage readiness and the seller prefers a quick sale. A 3-year or longer term gives buyers more time to improve finances, but requires the seller to wait longer. I've seen a people make this work successfully in Tulsa, you'd just need to be sure your goals align and the contract is set up correctly.

Out of curiosity, what interested you in rent-to-own? 

Hope that helps!

[Chandra Faulk]

Thank you! 
We did it once about 8 yrs ago (although it was structured more like a lease-purchase). It was a great experience…high quality renter, no maintenance on our part, and she paid it off a year earlier than anticipated.

It was too long a term, though, and did not account for appreciation, especially during 2022-2023.

We have heard a few podcasts on the rent to own strategy, and are very interested. Just not sure on how to structure it…..

[James Atkinson]

Quote from @Chandra Faulk:

Thank you! 
We did it once about 8 yrs ago (although it was structured more like a lease-purchase). It was a great experience…high quality renter, no maintenance on our part, and she paid it off a year earlier than anticipated.

It was too long a term, though, and did not account for appreciation, especially during 2022-2023.

We have heard a few podcasts on the rent to own strategy, and are very interested. Just not sure on how to structure it…..

 Makes sense! It can work out great for both parties when set up correctly. Feel free to shoot me a message here if you have any specific questions on structuring it. 

[Rhett Tullis]

a few concerns I always have on these.

-why do they need to do lease to own?  generally some sort of financial issue that makes a lender say they will not pay so why do you want to take a risk the bank will not take on?

-we had one like this we helped an owner with. seemed fine, separate docs for the lease and purchase.  separate process.  the judge however did not see it that way and said it was a foreclosure and not an eviction when they stopped paying.  took 6 months to get a date in district court.  by that time they had burnt down the trailer on the property, not paid rent in months, let the land go and made a mess of things.  while I am sure things often go better just be ready for the worst case and you will be fine.

[Chandra Faulk]

Thank you so much. I’m wanting perspectives like yours as well to know what risks we might be taking. If you don’t mind me asking, did you allow any part of the rent to go towards the purchase price, or did only the down payment go to the eventual purchase price?