My tenant wants to buy the home she’s renting from me

[Briana McCance]

Hi everyone,

I want to sell my rental property in Detroit and my tenant let me know she’s interested in purchasing it directly from me. Her credit isn’t good and she cannot get a mortgage. Could I have some advice on how to structure this if I wanted to try and sell to her?

[Dan Maciejewski]

There are 2 main options.  A Lease Option or Seller Financing.  

A lease option would give them the option to purchase at a set price within a certain timeframe.  That would give her the time to get qualified so a lender would underwrite her.  She would have the peace of mind to know you aren't going to sell form underneath her and you would have the knowledge that you "could" have a buyer by a certain date.  You are also still the owner and landlord and responsible for maintenance.  Usually there's an option fee, or you could up the lease a little to charge for the option.

Seller Financing means you underwrite her and write and hold (or sell) the note.  She becomes the owner (at least in my state) and you become the lender.  If she defaults, you have the same options as any lender -- foreclosure.  In this scenario she is responsible for all maintenance (most fully amortized mortgages specify the level of upkeep required).

Your state should have a standard contract for either scenario.  You will want an attorney to draw up the note and purchase and sale contract or lease option contract.