Lease to Own Homes
When people hear “rent to own”, they often think of signing a boiler plate contract to rent a living room set for two years at a highly exaggerated rate until they’ve paid $3,000 for a living room set that retails for $1,200. Fortunately, lease to own homes don’t work that way. First off, the contract is negotiated between the buyer and the seller to be a best fit for both.
Lease to own homes are done for several reasons. Maybe you have to relocate for work, or are buying up to a better home, or for another life change reason. As an investor, you’re better off going with the sandwich lease to own homes business model that I’ve written about before. Using the lease to own homes model to only sell your personal residence won’t make you rich but it can get you out of a difficult financial position if you’re paying two mortgages.
Lease to Own Homes Make You a Landlord
Something people don’t give much thought to is that the lease to own homes method basically turns the seller into a landlord until the sale closes. However, there are provisions that can be included in the contract to minimize this. Since the renters intend to become owners, you want to include a contact clause saying the renters are responsible for maintenance and repairs. Maybe not for all repairs but up to a specific limit such as $3,000.
Still, lease to own homes do come with the potential that as a landlord, you could have trouble collecting the rent occasionally. One way of motivating the renter to stay current is by including a stiff nonrefundable option fee in the lease to own homes contract. It should be about 5% of the purchase price. Since the only way the renter/buyer can benefit from that fee is by completing the purchase, they are motivated to stay current with the rent.
Often, lease to own homes agreements allow a certain percentage of each month’s rent to apply towards the down payment. A clause can be included stating that if the rent is “X” days late, nothing from that month’s rent will be applied towards the down payment.
What Could Happen With Lease to Own Homes
This is the real world and almost anything can happen with a lease to own homes arrangement. One possibility is the renter/buyer might turn out to be a slob that allows pets to ruin the carpet and dig up the yard. Or young kids are allowed to draw on the walls. You definitely want to check their references as any other landlord should. One trick I’ve used over the years is to have someone go look at how clean they keep their car while they are looking at the house. Of course, none of this matters if they complete the lease to own homes agreement.
Keep in mind that after the Great Recession, many people have low credit scores that never did before. They may have been foreclosed on because of an abusive mortgage they unknowingly got trapped in. Or they lost a job and defaulted on credit cards. Now, they’re back on their feet as responsible citizens and make good candidates for lease to own homes agreements. But perform your due diligence before signing any lease to own homes agreement.
If you want to work directly with me on the lease to own homes business model or any of the other investing models that have proven highly profitable, please join me at www.wendypatton.com/what-is-wendy-pattons-inner-circle.
Besides reading this article about the lease to own homes business model, you’ll want to read this other useful information that I offer free. Please take advantage of it today.
Buying a House – The Time is Now
HUD Homes for Sale – Flipping Investors
Can Landlords Break a Lease Deal?
Protect Your Lease Agreement with an Option to Purchase
Several times each week, I make the most current real estate investing information available to readers. This time, it’s about the lease to own homes business model but the information I provide changes constantly to stay current with the market. Be sure to check back at: www.wendypatton.com. Also, get started learning how to do NO CASH lease options on real estate by picking up a copy of my bestseller book: Investing in Real Estate with Lease Options and Subject-to Deals.
By Wendy Patton
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