Tenants want to Rent-to-Own

[Lilac M.]

My tenants want to rent-to-own the property they are currently renting. Unfortunately they are under the impression that the property is worth a lot less than it really is, although I've told them the actual value. If I agree to do rent-to-own, can I simply let them put a portion of their rent towards a deposit for a couple years and then let them buy it at market value at the time (based on an appraisal)? Or does a selling price need to be worked out ahead of time? What happens if after the given amount of time they decide they don't want to buy it or can't get financing - can I keep the portion of rent that would have gone to the downpayment? How do these things usually work?

[Jon Holdman]

You can either work out a price ahead of time or figure out the price later. Better, IMHO to figure it out now. That avoids nasty arguments later.

I would allow only a small portion of the rent toward the down payment. Allowing too much increases the likelihood of a judge deciding they have an equitable interest in the property.

You should also get a option fee when you agree to do this. 3% is pretty typical.

If they walk away you would be within your right to keep the option money (that is the price for the option) and all the rent.