Rent to Own agreement proposal advise????

[Michael Fitts]

I currently have bad credit but make 100k a year and rent a house for 1450 a/mo.  I was originally thinking of flipping this house and had a couple investors semi lined up however in reviewing the house and going over all of this I was thinking that it would be a great first house for me for the next 2 years then buy a bigger one and sell this one so I put together this proposal to present to my uncle unless someone else has a better idea but I would love every ones thoughts on whether they think this would be a good deal for both the investor and myself????   Please help!!

Rent to Own Contract

Whereas, ___________________ (hereafter Renter) desires to possess and have the use of certain property owned by ____________________ (hereafter Owner) and described in Attachment A, and

Whereas, the parties have agreed that Renter shall take possession of the property on MM/DD/YYY and have the use of the property until this agreement is terminated, and

Whereas, Renter and Owner intend that ownership of the property shall transfer to Renter upon the full completion of this agreement,

Now, therefore, the parties agree as follows:

Renter shall pay Owner the sum of $800.00 on MM/DD/YYYY and the same sum on the 1st day of each month for rental of the property.

If payment is late by more than three days, a late fee of $50.00 shall be due immediately from Renter.

The parties agree that the purchase price of the property is $25,000.00

The parties agree that $500.00 of each month's rent payment shall be applied towards purchase of the property.

The parties agree that ownership of the property shall transfer to Renter upon Renter's completion of 50 payments as described above. If balance is paid off sooner then 50 payments renter agrees to pay a pre-payment penalty of $2,500.00 to be added to the remaining balance of said purchase price.

The parties agree that if Renter fails to complete the contemplated purchase of the property for any reason, no refunds or credits shall be due to Renter.

Renter shall maintain the property, at Renter's expense, in clean, good working order.

Renter shall pay all property tax’s as well as all other expenses associated as if the property was in there name.

Renter shall indemnify and hold harmless Owner against any and all claims, damages, or actions arising from Renter's possession or use of the property.

If Renter fails to make a payment within 15 days of its due date, Renter agrees to surrender the property to Owner upon the Owner's demand.

If Renter fails to make a payment within 15 days of its due date, Renter agrees that Owner shall have the right to enter Renter's property for the purpose of taking possession of the rented property.

If after completion of this agreement renter sells said property 33% of total sale price will be paid to owner ( ).

Renter agrees to make and pay for all necessary repairs needed to include but not limited to, roof repair, plumbing repair, painting, heating system and kitchen remodel within a 12 month period or renter agrees to forfeit property back to owner with no refunds of and money paid thus far.

In witness to their agreement to the terms of this contract, the parties affix their signatures below:

_________________________________ _________________________________

Owner, signature & date

Address___________________________

City, state, ZIP _____________________

_________________________________ _________________________________

Renter, signature & date

Address_____________________________

City, state, ZIP________________________ Notary Signature :

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_____________________________

[Bill Gulley]

Bad RTO agreement!

@Michael Fitts 

The comment above is my heading to expedite a search.  Acting as your own attorney is a bad idea, your agreement has issues in violation of IRS Code for residential property leases, you can't pay for maintenance or make improvements as the owner is required to capitalize and depreciate items and he's not expensing costs if you pay for them, doing so is tax fraud. And, as a tenant you can't capitalize costs if you're not in title.

Your allocation of rents to credit are excessive and you are setting up a financing contract, which is another issue. Your credits are also an issue with the equity established if you were needing to refinance the deal, people do die, become incapacitated, have financial issues arise in estates, even if they are family.

If you make $100K a year, you can afford an attorney to do this right, he can buy it and sell it to you with a mortgage/note and deed of trust, then you will have the rights and obligations of repairs and/or improvements as the owner. Tenants can't hire good contractors, obtain building permits, insure workers, contract for materials or other worker's responsibilities.

Finance laws that exempt "family" are generally seen as 1st degree, mother, father, sister, brother, wife, daughter and son, uncles are 2nd degree members. However, this being close and one transaction, my bet is that Dodd-Frank won't apply. Your uncle is selling a non-owner occupied to an owner buyer, if that is not his business, he may be exempt, but your attorney needs to address that.

If you are to split future profits, then your uncle can sell and finance a "one half undivided interest" that keeps him in title and keeps him out of any financing issues of usury interest rates and other issues. Do some math and you can make this pretty simple. He may feel better staying in title with you, but you need to be in title to do what you are wanting to do. You simply take an option to buy his interests.

These future sale deals should state a price at which a property will be sold, like upon an offer at or above 10% of asking or appraised value, whichever value is less. Is it to be listed? Any agreed date of sale? Any agreement to drop the asking price after the property has been exposed to the market over time?

I understand that this is family and not a predatory matter, but rent to own is absolutely not the way to go. It's not an expensive property, an attorney shouldn't be hitting you up for much on this transaction, so you need to see one. Writing contracts is more than putting understandings on paper, it requires knowledge of law and structure that leads to a completed transaction. Good luck :)