Renter wants to lease to own?

Question

We have potential renters who want to lease to own. They can afford the monthly payments but don't have the downpayment for the house saved yet- they have a plan to do so in the next year.

We offered to allow them to rent  at a lesser rate for a year (to help them save for the house) and they be responsible for small repairs and at their lease renewal we touch base and see if they want to buy. They really want to lease to- own, however, and set the price now with an addendum if it greatly appreciates or depreciates.  We are in a greatly appreciating market.

The red tape worries us about lease to own (and the headache). But we don't want to pass up a good opportunity (we plan to sell it in the next few years) because of ignorance of this process.

Thank you so much for any insight or experiences you might share!

JD Martin · Answer

Not a good strategy. I would listen to @Omar Khan and just move on to better renters. It's not your responsibility to create lower costs for them so they can save up a down payment. If you want to sell the property in a few years, just sell it. They have no down payment, no skin in the game, so what you're looking to do is hold a note for people with no money down, counting on them to maintain the house as it should be maintained, and giving them an interest in the house such that if/when they quit paying you have to foreclose. Sounds like a recipe for disaster to me.

Omar Khan · Answer

@Victoria King Going off your post, I would suggest against lease-to-own for the simple reason that it adds unnecessary complications given the market you are in.

It shouldn't be that hard to find renters in Dallas. You can always choose to sell the house at a later date without any complications.

Save yourself the hassle and inconvenience. Start off simple.

Joe Garramone · Answer

Hi Victoria,

I went through this a few years ago with a single family we owned. We had a renter interested in buying our house but needed to rent first as they didn't have a high enough pre-approval with the wife between jobs to purchase the house. Our lawyer wrote a contract that read the tenant will rent for 12 months (paying us monthly rental payments), at the end of the 12 months they would need to be ready to purchase the house for the agreed upon price when initially signing this contract. We too had reservations about this process because the tenant could easily just back out and say they are not ready to purchase the house at the end of their lease so our lawyer put in the contract that the tenants would need to front $15,000 when signing the contract as a deposit on the house (which we put in an interest bearing account). This deposit would be forfeited if they decided to not purchase the house at the end of the 12 month term. This helped us feel safer in a rent to own situation where we really wanted to sell our house and this rent to own was the only option on the table. If they backed out we got to keep 15,000 extra dollars and re-list our house, if they decided to go through with the purchase we would return the deposit. We didn't end up moving forward as the buyers decided on purchasing a less expensive home but something like this might be possible for your situation.

I would advise speaking with a real estate lawyer in your area to see if they have any experience with rent to own agreements to see what kind of outside the box ideas they may have that would make you feel safer with a rent to own agreement. It sounds like your renters/buyers don't have a lot of cash so maybe they do something like pay their monthly rent and an additional 500 (or whatever) a month that goes into an interest bearing account that you keep if they back out or you return to them if they move forward with the purchase. This may help you feel safe with a rent to own and could help them save for their down payment.

Victoria King · Answer

Thank you so much for your insight! They did offer to put $ down as part of the downpayment, but that also made me nervous for the legal complications that might add of holding the downpayment etc..

Renter wants to lease to own?

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