Lease to Own

[KimReedSmith]

I met recently with a REIN member to discuss options on renting out my current principal residence.



Based on the numbers anyway you shape it the property would not cash flow and would not fit the REIN model. As of right now it would probably be -$200/month!



He stated if he was in my situation he would look at two options; sell it or lease to own.



With selling the unit I would be losing money on it.



I am not familiar with lease to own option. What I gathered from it is that you can generally get a higher monthly rent from it and generally it will attract better tenants. A downfall maybe deciding initially on a selling price when the lease is up (ability to have an idea where the market would be 2-3 years down the road).



Can anyone provide me with additional information on lease to own - experiences/pros/cons?



Thanks.



Kim

 

[Sherilynn]

You should decide the price in advance. Think of a number that is fair for you but would still be a good deal for your tenant.



Talk to some people in your area (investors, realtors, economists, etc) and do some research (bank websites, REIN, CMHC) to try to get an idea of how quickly prices in your area are expected to increase. Do the math, and then leave a little on the table for the tenant to make it a win/win deal.



You can lease the place for well above market rent, with the portion that is above market rent (or even a bit extra) going towards further option deposits. That way you have the cashflow you need but the tenant isn't overpaying.



For instance, if market rent for your home would be $2000, then you could charge $2500/month with $600 going to further deposits. So you get huge cashflow and the tenant is actually saving on rent. Remember all option deposits become purchase deposits when the tenant-buyer exercises his option to buy.

 

[Thomas Beyer]

Easier said than done.



Tenant selection is critical .



Buy Mark Loeffler's book. Hire him for a consult. Then act on his insight .



Finding a qualified tenant buyer is difficult but not impossible.



Set option credit and initial option deposit high enough but not too high.



Proper legal contracts, one for lease and a separate one for option to buy is also very crucial.

 

[Sherilynn]

I agree that tenant selection is critical and proper contracts are equally critical. I actually meant to mention something along those lines but had a brain freeze. ; ) And reading Mark's book is a good suggestion. Although some of the book would not apply because it focuses on "tenant-first" rent-to-own, much of it would be helpful.