I've got 2 properties I want to sell as "Rent to Own". Ideas?

Question

I haven't structured a lease-to-own deal before and have a couple of properties we've fixed up and want to sell this way, vs. listing as regular sales. I want the deals to be fair but desirable for the sellers/landlords as well. What are some good ways to structure a fair deal for the buyers with a good return for the holders? Current term types?

Thanks for your ideas in advance!

Nathan Gesner · Answer

I have a lot to say on this, but I'll keep it short.

Don't do it. I estimate more than 80% of all lease-option deals fall through. The people attempting to buy under a lease-option are unable to qualify with a traditional lender, which is why they show up on your door. Why won't the lenders work with them? Because they are unknown or high risk and banks know it's a waste of time. Why would you waste your time with someone the bank won't touch?

If you do decide to do it, do some Google research to learn the basics. Search for "structure a lease option" and try to read a lot of different articles to get a basic understanding. Then talk to an attorney so you're protected.

If you didn't hear me the first time, let me say it again: don't do it. Rent the house or sell the house.

Jay Hinrichs · Answer

Nathan agreed  default rate is sky high.  However one thing for certain this is Texas and they have some very definitive laws on lease options that the OP needs to check with a local attorney before they go down that road.   Where I have done well on seller carry back is when I was selling off my OREO and took back zero percent interest loans.. those paid 100%  ..  Never had a one default.

Jay Hinrichs · Answer

Back in the day in Detroit myself and my clients we did oh maybe 100 plus of these .. cant recall a one that came through at the end average time to default was about 16 months.  Now I have done it successfully in higher dollar markets where the buyers had 20 to 50k to put down and were just waiting to sell their home in another state..  But for those that cant qualify today and have little to no money IE 5k  its just a Glorified tenant and in lower income credit challenge areas its not even that.

Jay Hinrichs · Answer

One of my lovely buy on contract Detroit homeowners  when they defaulted did so much damage i just let the property go for tax's.. for the average investor starting out thinking this is the bee's knees this type of situation could be devastating.

Drew Sygit · Answer

The term, "rent to own" is a marketing gimmick.

A better name is, "lease with option to purchase".

As the others have said, most do not work out. Tenants are tenants for a reason. Even if you give them 5, 7 or 10 years to get a loan to pay you out, they won't get their lives together to do it.

So, if you go down this path require at least 10%, preferrably 20% down. You'll need those funds to offset the cost of getting rid of them AND of course the retaliatory damages they do on the way out.

Ronald Rohde · Answer

I'll add that Lease to Own in TX is highly regulated, difficult and with stiff penalties to the seller.

Lease Option is fine, just not contract for deed.

Joe Villeneuve · Answer

The "own" part is your basic option agreement.  The best way to do this isn't to look for one person, the tenant, who wants to also buy.  The best way is to separate the two (they should be separate agreements anyway) agreements with one being the typical tenant who is leasing, and the other is a REI that is buying the property from you using an option agreement.

Scott M. · Answer

I do not have any stats beyond our portfolio but like @Nathan G. the vast majority of them fall through, both lease to own and land contracts for that matter.  I only say this because you say you want to be fair to both parties and the only way to be fair is to educate them on the realties of these types of deals working.  Loans are pretty easy to get these days, not like pre 2008 but way easier then 2012 so those who can and want to are already buying today. Who knows what the finance world will look like in 2 or 3 years when the option comes up.  Maybe easier (better for the holders) maybe impossible again (worse for the holders).  I do like your intent though, being fair is the best way.

Account Closed · Answer

I thought Lease Option was limited to 6 months in Texas. My attorney in 2018 had me do a Wrap instead of a Lease Option because of the long length time I was willing to carry. Have things changed?

Account Closed · Answer

I can help. I sent you a DM.

I've got 2 properties I want to sell as "Rent to Own". Ideas?

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