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Top 6 Miscellaneous Tips for Rent to Own Deals

Building rent-to-own (lease option) real estate agreements for clients (or yourself) can be tricky. Below are the top 6 tips for putting them together successfully.

  1. The option money (written in the contract itself and paid to the owner) must be used as down payment funds (remember both the source and the document!). Monthly rental credits can be used to pay closing costs or reduce the purchase price of the home.
  2. What about a security deposit? Usually there isn’t one for various reasons. The first is that tenants only have a limited amount of money to put down (option fee, first month’s rent, move-in expenses, etc.). The second is that the tenant must treat the house well (and not destroy it), since they signed a contract to potentially buy it.
  3. What about the insurance? For the rent-to-own buyer, I always recommend renter’s insurance. It’s cheap (about $100 a year) and you’re very glad to have it when something goes wrong. For the seller, you just need to call your insurance provider and switch from a “homeowners” to a “homeowners” policy. Usually there is no price difference.
  4. What about inspections? The general, conservative response is to finish them before move-in and then sell the house “as is” at closing. However, since the tenant will live in the house for a year or two and the landlord will pay for repairs over $500, you can look at this on a case-by-case basis. Broken things will be discovered quickly as long as you live there.
  5. What about the much-hyped “higher rental rates” you hear about the command of rent-to-own arrangements? I see no evidence of this. Does this ever happen? Sure. Does it often occur in competitive markets? No. As an example, try listing your rental house for $200 above market rate as “rent to own” and see what your response rate is. There are many rent-to-own opportunities at market price (or below).
  6. What about paying an appraisal before the move? I think this is a waste of money. You can just use bonuses, negotiate the price, and then wait. When the tenant goes to buy the home, the bank will send an appraiser.

Happy selling!

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