How to Sell Your House Using Rent-To-Own

You can turn a rental into a sale.

Houses aren't selling. Real estate prices have plummeted. Unemployment numbers rise every month. It might not be the time to sell a home. But maybe that's not an option for you. Perhaps you're forced to accept a job out-of-state. Maybe you need to downsize to reduce your expenses. Rent-to-own, also known as a lease-option, avoids many of the dangers of renting while allowing you to ride out the financial storm. And even in a booming market, it's even easier to do a rent-to-own.

Things You'll Need

• Lease contract
• Option to purchase contract

Instructions

1. Determine what the going rental rate is for similar homes in your area. Look at the square footage, number of bedrooms, neighborhood and age of the home. Use the classified ads, craigslist and any other online resources in your area. You can get a higher monthly rent if you offer it back to them as a rent credit. This would be applied to the purchase price of the house. You can sweeten the pot even further by increasing the rent credit when you consider that they are paying down your loan each month.

2. Determine the sales price. Take into consideration that this sale will happen in one or two years, whatever you agree on with your renter. Prices will hopefully have risen by that time. But also make the price attractive enough so that a high-quality renter would want to buy at that price. Remember you're cutting out the real estate agent's commission in this deal.

3. Set the option fee. The option fee is what the tenant pays for the privilege of having a guarantee that they can purchase your home at a fixed price for a set period of time. If the option fee is set at one to two times the monthly rent, you will find that you have added protection and the tenant has a greater incentive to keep the place up.

4. Calculate what the monthly payment would be on the home, including taxes and insurance, if they had only their security deposit, option fee and your rent credit as a down payment. Is there any way your prospective buyer could make that payment in the future? Use this question, as well as employment verification and a credit check to determine if your prospective tenant is qualified to enter into a lease-option agreement with you.

5. Advertise your home in Craigslist first, and add the local paper later on if necessary. A sign in the yard can never hurt either.

6. Don't be upset if your tenant never ends up exercising the option to purchase. But they've kept up the house and made the mortgage payments. They've also bought you some time while you wait for house prices to rise again.

Tips & Warnings

• It is important for tax purposes that the phrase "option fee" is used instead of "down payment. You don't want the IRS claiming that you have sold your house when in essence you only renting it.

• Get Lease and Option to Purchase agreement forms that are legal for your state.

• A bad tenant is worse than no tenant.

References

• The New York Times: Breaking Down the Rent-Buy Equation