I continue writing about rent to own properties because this is the best win-win scenario that you will find without a full purchase price cash out on a property you are selling. Also, when it comes to rent to own properties, there are so many possible variations to how the contract is written that it’s worth highlighting different variations from time to time and repeating some as the readership grows.
One important key to rent to own properties is that the buyer has a reasonable chance of improving his or her credit score to the point of qualifying for a mortgage. The down payment usually isn’t as big of issue because most of that should be covered by the option to buy fee being applied to the down payment.
Rent to Own Properties Agreement
What leads to successful rent to own properties deals is a solid and detailed agreement. The three most important provisions of the contract are the price of the home, the cost to rent until the purchase is completed, and the deadline to complete the purchase. Also, what the option fee is and how much will be applied towards the down payment.
Other important language needing to be in the contract is exactly who is responsible for repairs and maintenance during the rental period. Often, the buyer/renter is responsible for routine repairs and maintenance but this should be spelled out in detail. For instance, the seller should maintain insurance on rent to own properties until the sale is final. Therefore, a major cost such as a tree falling on the house should be the responsibility of the seller. However, replacing a worn out refrigerator is the responsibility of the buyer. This can be written into the contract as a dollar threshold along with an agreement of how the dollar value of a repair is determined.
Something else to consider is if additional funds will be applied towards the purchase price. In the past, this has sometimes been a portion of the rent. Clearly keeping the rent payments separated from purchase payments is best done when the buyer/renter writes two separate checks for the rent and any money to be applied towards the purchase.
Two Basic Rent to Own Properties Arrangements
The most common rent to own properties arrangement is a lease option. This typically involves a lease option fee of between 3 and 5 percent. The lease option time frame is typically between one and three years. The buyer/renter has the option to buy but is not required to complete the sale. However, the option fee is forfeited if the buyer does not complete the transaction. The seller cannot sell to anyone else during the lease option period.
The other basic rent to own properties arrangement is the lease purchase. In this less common scenario, the buyer/renter is required to complete the sale. This arrangement provides the seller with more security that the sale will be completed. However, it’s not absolute security because the entire deal still relies on the renter/buyer being able to qualify for a mortgage from a third party. This arrangement does place the renter/buyer at higher financial risk because if he or she fails to complete the sale within the allotted time, a civil lawsuit for failure to complete the contract can be brought against the renter.
The best rent to own properties usually involve a buyer that is on the cusp of being able to qualify for a loan. Their score is only slightly below the requirement and they have a solid plan to bring it up to qualify within a short period of time. It’s a good idea for the buyer to work with a mortgage broker to learn the quickest way his or her credit score can be improved before signing the lease to purchase contract. That’s what makes win-win rent to own properties.
Real estate investing does not need to be about owning as much property as possible. It should be about controlling as much property as possible for the least amount of money and risk. That makes the Sandwich Lease Option the most attractive investing method I know of. You can take control of the property for a couple of hundred dollars. You then put an option buyer in place that takes on most of the homeownership responsibilities until they make the purchase and take on full ownership responsibility. The Sandwich Lease Option let’s you make a big profit for a small investment. This is the method that I highly encourage my students to use.
By Wendy Patton
For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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