prospective tenant wants to sign `purchase option contract` while signing 3 yr lease

[RArora]

Hi

We have a person who wants to rent the house on a 3 yr lease but only after we sign a purchase option contract so that at the end of 3 yrs they have the option of buying the home. Right now I am open to selling the home at the right price 3 years down the road however no one knows the future. What if things happen in life that I need to sell it in 1 yr or after 3 yrs I dont want to sell it.
Has anyone ever dealt with a purchase option contract? if So would really appreciate it if you could shed some light on the same.

I would appreciate facts on the matter too if possible pls.

Thanks
Regards

 

[ontariolandlord]

QUOTE (RArora @ Jun 24 2010, 04:13 PM) Hi

We have a person who wants to rent the house on a 3 yr lease but only after we sign a purchase option contract so that at the end of 3 yrs they have the option of buying the home. Right now I am open to selling the home at the right price 3 years down the road however no one knows the future. What if things happen in life that I need to sell it in 1 yr or after 3 yrs I dont want to sell it.
Has anyone ever dealt with a purchase option contract? if So would really appreciate it if you could shed some light on the same.

I would appreciate facts on the matter too if possible pls.

Thanks
Regards
I`ve been in this business since the early 80`s and I know my advice here is going to be `slammed`.

I`ve been through this so many times.

They need to choose to either (1) rent or (2) buy.

 

[GaryMcGowan]

Why not turn it into a 3 year Rent To Own? You can pass on all the maintenance to the tenants and not have to worry about the midnight calls anymore.
I would look to get a deposit of a min 3% of todays FMV and work from there. Make it a Win Win.

 

[Thomas Beyer]

QUOTE (RArora @ Jun 24 2010, 03:13 PM) Hi

We have a person who wants to rent the house on a 3 yr lease but only after we sign a purchase option contract so that at the end of 3 yrs they have the option of buying the home.
Thanks
Regards
Ask them to pay for this option .. Say 10 or 20 K .. As a credit towards the future purchase price.

Now you have rent-to-own situation that could be win-win !!

However you must have legally binding contracts in place for both the rental and the option side as they may change their mind and as such you will then keep the option deposit (which of course they will not like) !

Rent-to-own is a very profitable business model BUT: it must be executed well and you have to protect yourself in case the rent cheques start bouncing or the place gets trashed !!

 

[housingrental]

This would be a good time for you to read through Mark Loeffler`s book

 

[housingrental]

Why?

If properly structured from the outset a rent to own provides no additional risks that aren`t found from just renting?

QUOTE (ontariolandlord @ Jun 24 2010, 10:53 PM) I`ve been in this business since the early 80`s and I know my advice here is going to be `slammed`.

I`ve been through this so many times.

They need to choose to either (1) rent or (2) buy.

 

[Minoune79]

QUOTE (housingrental @ Jun 25 2010, 08:20 AM) Why?

If properly structured from the outset a rent to own provides no additional risks that aren`t found from just renting?


I totally agree! Rent to own is no more risky than renting. And generally you have less headaches, less expenses, and more income. Sounds like a true win-win to me! Of course, you can`t sell the house to anyone else anytime during the term of the contract. And, you must remember one of the main rules in this business: You must be seriously interested in selling your home to this buyer, and must do your homework to ensure they will be able to qualify to purchase the home prior to the end of the contract. You do not want to set them up for failure as this will come back and bite you in the end. However, if the tenants turn out to be bad (ie. pays rent late continuously, doesn`t maintain the property as they should), there are several ways that would allow you to get out of the contract early. By adding certain conditions in your purchase contract (before it is signed) you may then be able to revoke their option to purchase and sell the property as you please.

 

[invst4profit]

How bad do you want these people as tenants. Are they saying they will not rent if you do not agree to sell. Why would you feel you have a gun to your head in regards to accepting these applicants as tenants.
Is this situation in regards to renting for the first of July. If so be extremely cautious of these applicants. Generally only tenants with serious issues rent this late in the game. You may be being set up.

If you do want to go ahead with a lease option but are not certain set the numbers very high so that they either walk away or you are guaranteed to win if they accept. $20,000 up front will send them packing if they are trying to pull a fast one on you. Again if they should accept and agree to a very high purchase price in three years be very suspect of there motives.

 

[JimWhitelaw]

Good advice so far, as expected. I`ll add only that you should examine your own business objectives and your plans for this property. Does selling this property in 3 yrs or less fit with your long term goals? If so, then set up a properly contracted RTO and go for it. If not, move on to a tenant that does fit your plan.

Don`t change your business to suit the tenant, find the tenant to suit your business.

 

[JoeRagona]

QUOTE (JimWhitelaw @ Jun 26 2010, 07:15 PM) Don`t change your business to suit the tenant, find the tenant to suit your business.


Amen to that Jim. This is a quote I`m going to put on my wall along with many others I live by daily. I`ve been caught twice doing the opposite of this. The first one was coincidently my first property which WAS a rent-to-own...follow YOUR system is the best advice you can get.

 

[RCrein]

I think Jim and Joe offer good advice. It`s entertaining to have an offer come to you, but it is just a distraction from your Belize if it doesn`t help get you there. You run the risk of wasting a lot of time researching someone else`s business model and the first time you try something is the time you pay the most for the experience. If on the otherhand you see clear benefits to yourself, you are the best judge of when to invest more of your time and money.

Your candidate tenant seems to want a benefit (option a fixed price) without offering to pay for it. She/he has nothing to lose if the market price doesn`t provide sufficient profit in three years, they can choose not to execute it. Why not ask for a nonrefundable fee for the option? I suppose their next offer might have the lease payments considered as a contribution to the purchase price. Then not only are you locking in the price you are being asked to help pay for it.

I`m suspicious that they might trying to set up their own RTO opportunity by subletting your property. If you have the right property for it, maybe there`s more profit for you to try it yourself. But remember you will invest in your learning curve.

All interesting possibilities with lots of homework and diligence to do. Is is making your life more complicated and are you profitting from the effort? Best of luck with whatever direction you choose or choose NOT to do.