A Rent-to-Own Method for Owners
An owner's advantages to selling his property through a rent-to-own process include avoiding real estate commissions, increasing cash flow in the years preceding the sale and benefiting from an option fee whether the property ultimately sells or not. So long as the owner knows what he's doing, writes a good contract and keeps the property maintained and well-managed, there aren't really any downsides to this method of selling.
Other People Are Reading
-
Consider All Options First
-
Because the contract binds you, as the seller, to sell the home and gives the tenant the right rather than obligation to buy, you must make sure you want to sell before you sign a rent-to-own contract. If you need cash now, a standard sale right now (or as soon as the market improves) or a refinance might make more sense. If it looks like the market is poised for appreciation in coming years, think hard about holding off because a rent-to-own sale will result in giving equity away to your tenants.
Set Favorable Terms
-
A lot can happen in a couple years. If you set a home price at today's market rate but prices appreciate in the double-digits before the option period expires, you might begin to regret your commitment to sell. Or, prices may go down and the tenants will not want to exercise the option to buy. Think about every possible scenario the future may bring, and write your contract accordingly. Set an option fee high enough to make you happy that you used a rent-to-own contract whether the tenants buy or not and whether the market appreciates or not. Set a price a bit over current market price to give you a small share of equity growth but not so much it keeps tenants away from taking the deal. You may also be able to charge slightly over market-rate rent if your buyers are motivated to buy but can't qualify for a loan just yet.
-
Don't Give Up Landlord Duties
-
Not all rent-to-own contracts result in a sale. The tenants could end up changing their minds, having to move because of health or employment reasons or fail to qualify for a mortgage when the time comes to buy. For these reasons, it's imperative you keep wearing your landlord hat as long as you still own the property. If the tenants wreck the house and move in the middle of the night, you'll be left with an unrentable, vacant property. If they burn the house down three days before the sale goes through, your insurance is the only protection from financial ruin that you'll have. Until title transfers, treat your tenants as tenants -- because that's what they are.
Be Prepared to Do It Again
-
You know that saying, "Don't count your chickens before they're hatched." The same goes for rent-to-own properties: The property may or may not sell. Especially if the tenants came into the deal with bad credit, a sale may not be possible if they have not improved their finances before the option period expires. They may or may not want to stay in the home as tenants after the option expires. You will be left with a vacancy and will have to decide what to do next: rent, rent-to-sell again or sell. Market conditions may constrain your options.
-
