Rent to own question

[Kevin Breneman]

I currently have a tenant that is renting for $1300 a month, however they want to purchase the house.  I was thinking of renting for $1900 a month for 20 years, after 20 years the house would be their's, has anyone else done this type of for sale by owner? Are there any downfalls to doing this? Seems like it would be a good deal for both myself and the tenant.

[David Krulac]

if they ever default on their payments, and it goes to a judge, they will say that they are an owner not a tenant.  In form over substance, they probably win the case.  Additionally, there could be tax consequences for you, possibly losing your long term capital gains tax treatment.  imho its way too long, and lots can change in 20 years.  My max would be 3-5 years with a balloon. And you would still be subject to code violations since you are the deeded owner.  I'd prefer to take a downpayment and have them get a lender mortgage.  Second choice would be to help with closing costs.  Third choice would be a small second mortgage. Fourth choice finance with a deed transfer and recorded mortgage.