Lease to Own SE Michigan

[William Ware]

As I'm still investigating my options I thought I would submit my questions.
- Currently own a 2/2 condo with no mortgage. Same tenant for the last 18 months at $825/month.2005 price of condo new 116K I paid 20K cash. Current value based on recent cash sales $40k. HOA fee's $160

- The tenant has asked if I would be interested in selling and holding the note. This is an area that I'm still educating myself on. What terms would I ask for? Should I sell or continue to rent? Here are some of my initial ideas.
20% down on a selling price of 40-45K
5 year balloon
6-7% interest
This would be right around a $220/month mortgage
Do I add this to the monthly rent or drop the rent down to $600 and add the note of $220 keeping the total monthly income the same? Thanks for your help.
Bill

[Jon Holdman]

If you did a straight sale to the tenant at $45K with 20% down and 7% interest, the payment would be $239.51. That's the only money you would be getting from the tenant. The tenant would now own the property, and would be responsible for all the expenses. If the tenant, now owner, stops paying, you have to foreclose.

If you do a lease option, you would collect an option fee up front. If you could get 20%, great. Typically that's more like 3-5%. You would typically credit some portion of the rent, maybe $100-200 toward the purchase. If you agreed to, say, a three year option with 5% option fee and $200 rent credit and a purchase price of $45,000, then at the end of three years the tenant would have a credit of $9,450. At that time they would have to get a mortgage and actually purchase the property from you.

A property worth $45K that's bringing in $825 in rent is quite a nice rental. Are you sure you want to sell?