Rent to own real estate with option to purchase brings quality tenants.
These properties will also bring rent
amounts higher than current market rates,
a non refundable upfront fee for the lease option
usually 3 to 5% of the value of the property
and 5 to 15% more for the purchase price.
Investors get three paydays
1. option fee -immediate cash flow
2. monthly rent -short term investing strategy
3. purchase - long term investing strategy 1-3 years
Rent to own real estate strategies are also known as Lease options.The investor simply becomes the landlord, leases the property to a buyer
who becomes the tenant. Properly set up your lease options always use 2
completely separate contracts; a Lease Agreement and a Option to
Purchase Agreement.
The tenant has the option to buy the property for a
predetermined price at any time before the lease expires.
In return for the privilege of having the option to
purchase your property, the buyer pays you a
non-refundable option fee
You also get low vacancy rates and No maintenance or repairs.
And taxes are deferred on the option money until time of purchase.
Sales price of the rent to own real estate will be at top market value.
The option to purchase agreement will have a stated fixed selling
price, that's 5-10% more than the current market value. The price should
reflect the amount of appreciation during the lease that the property
will incur.
And it needs to reflect a convenience fee for the generous
consideration you have given to the conditions in the contract and
because of their credit score. Don't call it a convenience fee just add
it into the %.
The lease agreement will contain a security deposit that will be
transferred upon purchase to the down payment. The Option to Purchase
agreement will contain an option fee, usually 5% ish. This is what you
(the investor) gets to put in your pocket no matter if they buy or not. And it is always non refundable.
Never give credit for a portion of the rent to go to the closing costs.
Instead keep the rent at a fair enough price to allow them to save for
their down payment and closing costs. Its important to set your tenant
up for success. Put them into a property that they can afford. Its
essential because although many times the tenants will not exercise
their option to purchase within the specified period, some will.
These are the ones that have proved they can handle the financial
responsibility. Here's is your perfect opportunity to offer owner
financing and
create a cash flow note
and long term passive residual income.
It can all sound complicated but basically rent to own properties
are just multi layered buy and hold strategies with owner finance using
arbitrage techniques.
Late rent voids the option to purchase contract, so you'll always get
the rent on time. If they default, the process is eviction not
foreclosure which is quick and cheap.
FUNDING FOR
RENT TO OWN REAL ESTATE
Always use
Private money
to purchase properties that
you'll turn into lease options. By using
OPM and
money from IRAs
you'll always have an endless supply of funds.
Also use creative investment strategies
like wrap around mortgages and subject to contracts that let you control the property with a small amount of money.
When you know how and have your strategies lined up you create the
possibility to be paid in many ways and many times from just one piece
of rent to own real estate.
WITH RENT TO OWN REAL ESTATE
EVERYONE WINS
You're looking for tenants that have blemished credit, in this market
it usually means a foreclosure. We especially like the ones that have
enjoyed home ownership before, have a family, and a stable job. And
we're not talking white collar executives, no instead we like those blue
collar and lower management professionals. And they're less likely to be transferred.
It is an excellent way for people with damaged credit, that want home
ownership and cannot obtain a traditional loan. And that also means
first time home buyers without any credit history. Also it creates a
trial run for wanna be home buyer's that aren’t sure if they're ready to
purchase.
Best houses are single family homes in neighborhoods with good schools.
Look for newer, starter homes needing only cosmetic paint and landscape
that the tenant/buyer can do. Check out properties with high (DOM) days
on market. Properties that don't have a large amount of equity today
can be positioned to make money with built in appreciation. Builder's
close outs are also a good source.
The tenant/buyers feel like it's their home,
which creates a pride of ownership. They even add small upgrades that
they can enjoy as well as adding value to the property. They plant
flowers maintain the lawn and when a minor repair is needed, they take
care of the rent to own real estate.
Since you are still the owner you will continue to pay the insurance and
property taxes until the time of the purchase. (Always encourage your
tenant to get liability insurance for their possessions.) And in the
mean time, you get to take full advantage of all write offs and tax
benefits.
However, a surprising amount of tenant/buyer optionees often fail to
improve their credit rating or save for closing costs and a down payment
during the rental period and as a result do not exercise their option
to purchase.
Which from the investor's view point is not all bad.
Sure you have an empty house without tenants but that just lets you create another rent to own real estate deal
with 3 new paydays.
Rent To Own Real Estate to Funding
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