- Joined
- Oct 21, 2007
- Messages
- 181
Can someone please explain how a rent-to-own agreement works? We may have a candidate for that type of rental agreement, but we don`t know how to set it up.
Rent to Own
- Thread starter DianneDachyshyn
- Start date
- Joined
- Jan 10, 2008
- Messages
- 1,033
QUOTE (DianneDachyshyn @ Jul 30 2008, 11:45 PM) Can someone please explain how a rent-to-own agreement works? We may have a candidate for that type of rental agreement, but we don`t know how to set it up.
Hello Dianne,
There are a few ways of setting up a rent-to-own agreement. In my situation, I have two agreements in place with the tenants. One is a standard lease and the other is an option to purchase agreement (rent-to-own agreement). Have your lawyer draw one up for you and check the critical forms section here to help get you started.
If you also do a search for rent-to-own, there are many threads that have touched on these answers...many of them mine as I was helped by a few key members here; Kevin, Mark, Bob and Robert Di Vincenzo who is a great RTO lawyer.
Joey
Hello Dianne,
There are a few ways of setting up a rent-to-own agreement. In my situation, I have two agreements in place with the tenants. One is a standard lease and the other is an option to purchase agreement (rent-to-own agreement). Have your lawyer draw one up for you and check the critical forms section here to help get you started.
If you also do a search for rent-to-own, there are many threads that have touched on these answers...many of them mine as I was helped by a few key members here; Kevin, Mark, Bob and Robert Di Vincenzo who is a great RTO lawyer.
Joey
- Joined
- Aug 29, 2007
- Messages
- 61
There are as many different ways to structure an RTO agreement as there are folks who are doing it. Each one is probably slightly different from all the rest, so keep that in mind.
Two documents: a lease, much like the lease you`re using now, and an option to purchase.
The tenant gives you option money (they always think of it as a down payment on the house, but it is definitely not that). This money buys them the option to buy the house, usually at a predetermined price, and usually by a predetermined date.
The tenant usually doesn`t have enough of a down payment to buy a house, or they can`t qualify for a mortgage, or both. When it comes time for the tenant to buy the house, if they`re current with the rent, they get to use the option money as part of the down payment for the house they`ve been living in for the term of the lease. Of course, it usually gets much better. If current market rent is, say, $1300/month, you charge $1300 plus an additional $100 (usually a separate cheque) of option credits and when the option to purchase is executed, the accumulated months of $100 also contribute to the down payment. Some landlords even agree to match the $100 with an additional $100 of option credits (depends on how sweet you want to make the deal).
Your benefit? You get the up-front option money, the market rent, and additional monthly option money. You also get a tenant who, theoretically, will take care of all maintenance and will really want the house to look good after all, they`re going to be buying it when the lease is over and the option to purchase comes into affect.
Tenant upside, forced savings and they get to live in the house they want to buy.
Tenant downside (and here`s the kicker) if they`re late with their rent once, just once, the option to purchase becomes null and void and they lose all option money and option credits.
The sad part, although it could really work well for most tenants, statistically about 50% of tenants walk away from the house, and their option payment, when the lease ends.
Oh, well.
Cheers,
Steve
Two documents: a lease, much like the lease you`re using now, and an option to purchase.
The tenant gives you option money (they always think of it as a down payment on the house, but it is definitely not that). This money buys them the option to buy the house, usually at a predetermined price, and usually by a predetermined date.
The tenant usually doesn`t have enough of a down payment to buy a house, or they can`t qualify for a mortgage, or both. When it comes time for the tenant to buy the house, if they`re current with the rent, they get to use the option money as part of the down payment for the house they`ve been living in for the term of the lease. Of course, it usually gets much better. If current market rent is, say, $1300/month, you charge $1300 plus an additional $100 (usually a separate cheque) of option credits and when the option to purchase is executed, the accumulated months of $100 also contribute to the down payment. Some landlords even agree to match the $100 with an additional $100 of option credits (depends on how sweet you want to make the deal).
Your benefit? You get the up-front option money, the market rent, and additional monthly option money. You also get a tenant who, theoretically, will take care of all maintenance and will really want the house to look good after all, they`re going to be buying it when the lease is over and the option to purchase comes into affect.
Tenant upside, forced savings and they get to live in the house they want to buy.
Tenant downside (and here`s the kicker) if they`re late with their rent once, just once, the option to purchase becomes null and void and they lose all option money and option credits.
The sad part, although it could really work well for most tenants, statistically about 50% of tenants walk away from the house, and their option payment, when the lease ends.
Oh, well.
Cheers,
Steve
I am just wondering where you would find such statistics? We offer a LTO program - just started earlier this year - so have not got to the end point for our clients. I am truly hoping they are successful in purchasing the home and don`t walk away, and use a mortgage broker to do periodic checks with them to ensure they are ready. We also try to be understanding if one or two payments are a few days late, and not so quick to cancel the Option.
- Joined
- Feb 20, 2008
- Messages
- 62
QUOTE (hazed @ Aug 5 2008, 12:55 PM) I am just wondering where you would find such statistics? We offer a LTO program - just started earlier this year - so have not got to the end point for our clients. I am truly hoping they are successful in purchasing the home and don`t walk away, and use a mortgage broker to do periodic checks with them to ensure they are ready. We also try to be understanding if one or two payments are a few days late, and not so quick to cancel the Option.
I agree with Hazel, as we truely do want it to work for the tenants. However, the clause that the agreement is annulled by late rent or at the minimum that the months credit is annulled by a late payment sgould be written into the contract. If you choose to be lenient and give a second chance is up to you then.
I agree with Hazel, as we truely do want it to work for the tenants. However, the clause that the agreement is annulled by late rent or at the minimum that the months credit is annulled by a late payment sgould be written into the contract. If you choose to be lenient and give a second chance is up to you then.