New from Southern Maryland - looking for lease option guidance

[Bob Connolly]

Hey everyone, I've been a BP member for a few years and listened to the podcasts for years as well but finally making my first post. I recently purchased my third buy and hold and just finished up the rehab. I purchased for $130k, put in $35k and ARV is about $215k On the first day I listed the house for rent I received a prospective tenant who inquired about a rent-to-own option. This is quite intriguing to me as a great option for this home but poses some questions.

In doing my reading of forums and articles it appears the proper way to structure this is to create the lease as its own stand-alone agreement such as in a traditional rental and then have a separate option agreement. With the straight option the fee can be set to be non-refundable.  #1 Looking for guidance on what that fee should look like?  I've seen anything from $1k-10K or 1-5%.   #2 the tenant also asked about paying additional monthly to go towards the selling price.  From what I am reading this is now a No-No with Dodd Frank but other topics state it can be done if deemed fair market.  What is the correct take on this or are there ways to ensure we are staying legal while working with the tenant/buyer for the long term?

Thanks in advance.  Here is one of the before and after from the kitchen.

[Brandon L.]

@Bob Connolly , as the owner you would want to negotiate the highest option price possible. The most common I see are in the 10k-15k range. If a buyer is reading this, of course, you would want to negotiate the lowerest possible price. The lowest I have personally paid is 1k for a 3 year option.

The lease would be a standard rental lease

The option contract the most common I see are 1-3 years but can really be as long as the two parties agree to.

Be prepared for the buyer to default as this happens in a majority of lease option contracts.

Check with a lawyer to make sure you are in compliance with any applicable laws. good luck :)