Investor · Wethersfield, CT · Member since 2013 · 371 posts · 191 votes
So, back in the day before the (in my view wholly unnecessary) Dodd-Frank Safe Act it was common to perform a lease option as follows:
Large "option payment" as a faux down-payment.
Charge well above market rent
Provide generous rent-credits based upon the performance of the tenant-buyer.
Make the tenant-buyer pay for repairs below (say) $500.
In the case of a Subject-To deal the prior owner might be contractually on the hook for repairs above $500.
I realize Dodd Fank changed much of that. I have a partial grasp of what has changed: within market rent only, capped option payments, rent credits are by decree now magically redefined as a security, etc.
My question is: having done some reading I've gotten the general impression that requiring the tenant-buyer to do repairs that traditionally fall to the landlord also violates the act. Is this understanding accurate?
I realize few of you are lawyers, and those that are aren't my lawyer, and so forth. Any clarification on this point is welcome.
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
we only do owner finance, not lease options (which seem to be pretty sketchy legally in TX where I am). I have a rmlo I could ask if having the tenant buyer do repairs violates DF I don't know....
Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
11y
@Account Closed I'm doing some owner finance deals as well at this time. Because the new buyer is owning the home from day one they are responsible for repairs. Of course, because I want to build a long lasting positive relationship, I'm going to help them in the first 30-60 days if some big ticket items need work such as water heater, roof, or furnace breaking down. Beyond that, I make it clear they are buying as-is, we'll help if its a big ticket item (50% of the repair cost at most). At least the way my business model works the TB is not a TB technically because it is not a rent to own, there are no credits, and we work out a deal that X needs to be completed 90 days down the road, Y needs to be completed 120 days down the road. If not, then and only then, do I confront them and explain that they are not incompliance with our agreed upon contract that they are now inviolation of. If push comes to shove we can then get them out if need be.
Joe, I'd love to hear how you've got your deals set up?
Real Estate Coach · Scottsdale, AZ · Member since 2010 · 72 posts · 23 votes
11y
We set a price that will give the tenant buyers the opportunity to possibly earn equity and we give a credit back from the purchase price at the end of the term, in the contract or addendum we have the tenant buyers pay for all maintenance and repairs and a home warranty is added they pay for monthly.
The home is sold as is to avoid required inspections by the bank at the end of the term.
If your state puts the responsibility of maintenance and repairs on the owner so be it but you can still put it in the terms and hopefully the tenant buyers will take care of it.