Anyone do a rent/lease to own?

[John Morgan]

My tenant wants to buy my house through a lease to own or seller financing deal. Anyone have any suggestions. It would most likely in my opinion be a owner financed deal. But I don’t know where to start researching if this is a good idea and how to go about it.

[Account Closed]

Originally posted by @John Morgan:

My tenant wants to buy my house through a lease to own or seller financing deal. Anyone have any suggestions. It would most likely in my opinion be a owner financed deal. But I don’t know where to start researching if this is a good idea and how to go about it.

 It's a great idea for the right situation.

There are two different scenarios in Texas. 1. When the property is owned "Free & Clear" There is a lot of flexibility when the property is free and clear. Decide the selling price, interest rate, length of term, etc. So something like $250,000 at 5% for 30 years. Contact a real estate attorney and let him put the paperwork together.

2. When a seller has a mortgage on the property you can't do a lease  option for more than 6 months but you can do a Wrap or Land Contract. Again, the attorney can do the paperwork. If a particular attorney in your area can't do one of these, keep looking, it may take a few calls. It helps to focus on attorneys who do real estate.

[John Morgan]

@Account Closed

Thank you. I do have a mortgage on it and have had the property and tenant for two years. I just wasn’t sure about the process or if I’m better off just not doing this. 

[Account Closed]

Originally posted by @John Morgan:

@Account Closed

Thank you. I do have a mortgage on it and have had the property and tenant for two years. I just wasn’t sure about the process or if I’m better off just not doing this. 

 @Jerel Ehlert can probably help you out. He is a Texas attorney who knows his stuff and has some references if necessary I'm sure.

[Greg H.]

Rent to own is not illegal in Texas but the requirements to do a rent to own agreement for more than 180 are stringent therefore it is not done

You can do a wrap.  However while the chances are very slim, this route violates the due on sale clause in the Deed of Trust you signed for your loan

[Jerel Ehlert]

If it's a low price point, you own it free and clear, and buyer can pay it off in <5 yrs, you might consider CFD. MIGHT.

For anything else, use the full owner finance scenario: deed, promissory note, deed of trust...

• Close at a title company
• Use an RMLO and loan servicer
• No balloon earlier than 60 months (not recommended at all)
• Sales price = licensed appraisal (MAX).  Selling property for much higher than what a licensed appraisal would come in at moves the transaction into fraud territory.
• Note/lien = sales price - cash down
• APR: fair reflection of risk
• If APR is high => "high cost loan" under CFPB => appraisal and inspection become MANDATORY

Anything less than this...that's your butt on the line.

[Ronald Rohde]

Originally posted by @Greg H.:

Rent to own is not illegal in Texas but the requirements to do a rent to own agreement for more than 180 are stringent therefore it is not done

You can do a wrap.  However while the chances are very slim, this route violates the due on sale clause in the Deed of Trust you signed for your loan

 Rent to own can be done. It's just expensive. Be sure the juice is worth the squeeze!

[Marc Winter]

Be very cautious!  A typical 'rent to own' scenario constructively creates a contract to purchase.  That transfers certain equitable rights to the tenant/buyer--nice for them, not so good for you.  If things go sideways, you will have much more than a simple eviction to contend with.

Keep the paperwork simple and straightforward:  I suggest you do a lease with an option to buy.  Neither document should mention the other--lease is a lease only, option to buy is only an option.  Get thee to a qualified real estate lawyer.

[Jerel Ehlert]

If anyone is going to tip toe into executory contracts (CFD or L/O), you should be able to cite chapter and verse of Texas Property Code, Chapter 5 (Conveyances), Subchapter D (Executory Contracts).  My advice: DON'T.

It doesn't matter if you give a lease to one, and an option to purchase to another.  If they are related within a 2nd degree of blood or marriage (sec. 5.062).

An executory contract can be recorded the day after signing.  No, you can't have them waive this.

You will never get an eviction on such a lease from any JP who knows ANYTHING about executory contracts.

Do you understand why this is a disfavored method of conveyance?

[Sean Craigg]

Quote from @Jerel Ehlert:

If anyone is going to tip toe into executory contracts (CFD or L/O), you should be able to cite chapter and verse of Texas Property Code, Chapter 5 (Conveyances), Subchapter D (Executory Contracts).  My advice: DON'T.

It doesn't matter if you give a lease to one, and an option to purchase to another.  If they are related within a 2nd degree of blood or marriage (sec. 5.062).

An executory contract can be recorded the day after signing.  No, you can't have them waive this.

You will never get an eviction on such a lease from any JP who knows ANYTHING about executory contracts.

Do you understand why this is a disfavored method of conveyance?

 So you do NOT recommend rent-to-own in Texas for landlords?