DODD FRANK - Rent To Own - Rent Credits ARE LEGAL

[Cameron Riley]

- Attempting a Rent To Own agreement with prospective client,

- I called around 5-10 different people and companies, most of them operate on different levels... 1 company gives out 300.00 per month rent credits... Another never gives a rent credit etc

- However, the information I have seen on this forum has claimed that Rent credits are illegal, Nothing about rent credits are illegal and in fact, this is the number one reason why persons go into a rent to own agreement

- without rent credits, it turns away people from wanting to move in with the rent to own deals.

- Any thoughts? What is the best website to print paperwork?

[Shiloh Lundahl]

@Cameron Riley it is not that they are illegal, it’s that unless your a mortgage broker, you can only create so many mortgages on your own without a license. If you start to do a lot of credit backs then it is going to look like a mortgage to a judge no matter what you call it - which violates the Dodd Frank act and you could get sued and incur hefty fines along with needing to return money to your tenant. @Brian Gibbons is an expert on the subject and can correct me where I am wrong.

We started doing the lease option with credit backs and then when we got some training in lease options and became more knowledgeable, we stopped giving credit backs, and to be honest with you, it did not deter people from doing lease options with us. 

Here is an example of one of our homes. We are buying it at 40k and putting 40k I nto the rehab. The ARV of the home is 110k. We get a lease option buyer to come in with $3900, and they can lease it for 3 years and buy it from us at $119,900 within the 3 year period. Then we get a 20-year (5-year adjustable rate) mortgage for 80k. We charge them $895 (maybe $50 higher than market) for rent. No credit backs. It is not a mortgage and does not look like a mortgage. They purchase an option to buy the property but they do not have to if they do not want to.

Our total profit in 3 years 51k. They are happy because they can plant roots and get into a property that they can customize to their liking that they otherwise would not be able to do at this time. So we are capitalizing on their eagerness.

Here is a picture of what one of our properties looked like from the outside when we lease optioned it and below is a picture of what it looked like when I drove by it the other day.

If they were renting it, they probably wouldn’t have improved it like they did. But this family is committed to buying it within the next year or 2.