Rent to own

[terryaris]

I own some properties that have renters that are interested in a rent to own program.

My understanding is to go for about 5% down, so on a $200k we would be looking at $10K down.

My questions are:

1. What do I give him for security on his 5% down.

2. What premium would I look for on his monthly rent? (Rent is now $900)

3. What is the best way to set up the buy-out price?

4. In explaining that he now owner and not renter, though I still hold the mortgage, how do I go about having understand this?

Thanks for any light you can shed on this situation.

 

[dwoychuk]

QUOTE (terryaris @ Apr 13 2010, 09:18 AM) I own some properties that have renters that are interested in a rent to own program.

My understanding is to go for about 5% down, so on a $200k we would be looking at $10K down.

My questions are:

1. What do I give him for security on his 5% down.

2. What premium would I look for on his monthly rent? (Rent is now $900)

3. What is the best way to set up the buy-out price?

4. In explaining that he now owner and not renter, though I still hold the mortgage, how do I go about having understand this?

Thanks for any light you can shed on this situation.

Hi Terry,

I would suggest reading "Investing in Rent-To-Own Property" by Mark Loeffler. It explains the whole process.

Now I am not an expert nor a seasoned investor, but this is what I have learned in my research so far.

1) The deposit will be on the contract which will be written up before anything happens. He is committing that deposit on the basis that he will follow through with the contract and at that time, that money will be credited towards his downpayment. If he does not follow through, he leaves that money on the table and it is yours to perform any repairs/marketing etc.

2)Since he is already an existing tenant I would probably discuss with him to see what he can afford. Just remember that you should be giving him a monthly "option credit" every month so that has to be factored into the equation.

3)Buyout price is based on average appreciation. Have a look at your market appreciation and figure it out from there. I think a lot of people do it based on 5% per year, but I don`t know if that is a fair number right now for the tenant (they need to be able to qualify for a mortgage of the buyout value in the end).

4)Just explain the process (this is where reading Mark`s book will come in handy). Just be clear on every aspect on what is expected from him with the property and how the deal will play out.

Hope this helps.

Cheers,