Sell Your Rental Property on “Rent to Buy” Terms
My name is Jeffrey D. Smith. I’m in bit of a crunch and I need your help. I have some buyers who need a house. Actually, I have a triple digit number of buyers who need a house.
Here’s the situation: I am a real estate investor. I advertise to find people who want to lease option my houses. My marketing worked amazingly well. I found many more buyers than I had houses to sell. I wanted to find a way to help these folks to find a home and for me to earn some money on all the work I did to find them and qualify them. I set up this quick web page and started contacting landlords like you in the area.
My buyers want to live in the area, but right now, they don’t qualify for a mortgage loan. That means they would buy your property from you on a “Rent to Own” program. This is also called “Lease with Option to Buy”.
My buyers can afford the monthly payment and will qualify within 1 or 2 years. Every one of them has talked to a mortgage broker before I put them on the list. I wanted to know exactly how long it would take for them to qualify for a mortgage loan and pay off the house.
These buyers will also pay full market value for your house, and they will pay full market rent during the lease period, sometimes they will pay a little bit more than that.
Also, the buyers tend to take better care of the property than an ordinary tenant takes care, because the buyers see it as their property. You will have a written agreement with them that makes them responsible for repairs to the house. So, if the furnace goes out, they have to fix it or if the toilet stops up, they don’t call you in the middle of the night. This saves you from most of the usual landlord headaches. If you want a fully “hands off” deal, then you can retain the services of a property manager and add that cost to the monthly lease payment.
What if the worst happens and they default? They lose their option and you can evict them. The best part of this deal is that the percentage of evictions on this type of sale is way below the eviction rates of ordinary tenants. It’s much safer than renting to an ordinary tenant.
By the way, none of this costs you a dime. The buyer pays me an option fee for finding the right property with the right financing terms.
As far as price goes, I don’t care how much you want for it. Please remember, if it is priced much over market value, then I won’t be able to find a buyer. My buyers are very motivated, and they want a fair deal.
There is no reason that I shouldn’t be able to find a “Rent to Own” buyer who can pay you the full market value or maybe a little more, because of the way I am selling it. My buyers are very motivated.
If you are interested, then please let me know. We can talk in person and I’ll answer any of your questions. As soon as you give me your written approval to proceed, I’ll send out an email about your house to my buyers list. I have sold houses as quickly as one day with this buyers list, so don’t be surprised if things happen very fast after you give me your approval to get started.
Let me know what you think. Fill out the form by clicking here.
Whatever you decide, I wish you the very best of all good things.
(Frequently Asked Questions)
What sort of down payments do most people have?
I try to get between $2k and $3k as my lease option fee from the buyer or more if possible. This is where I make my money from the buyer, so my goal is to get a much as possible. (I will not work for free and I am not a charity. I hope that you understand that important point.) Also, the more I get as a down payment, the more stable the tenant is for you, so that benefits us both. The tenant has a serious investment to honor their agreement with you.
What is the number of people who walk away from the house when the lease is over, either because they are unable to get regular financing or decide the no longer want the home?
Less than 30% of lease option buyers will exercise the option. So it is likely that they will not buy it at the end. But there are some real benefits:
- Filling the property doesn’t cost you a dime. The buyer pays me for that service by the option fee.
- You will not lose your mortgage or property tax payment every month on a vacant property, because you will offset it with the monthly income.
- You will not pay for maintenance on the property, because the new buyer/tenant is responsible for repairs.
- The buyer/tenant pays for utilities.
- The buyer/tenant cuts their own grass and shovels their own snow.
- The buyer/tenant won’t call you like ordinary tenants.
- You get a 3-year lease rather than 1 year for most ordinary renters.
- You have a much more stable tenant compared to an ordinary renter. These folks see themselves as owners rather than ordinary renters. Remember the old adage, “You don’t wash a rental car.” The same goes for buyers vs. tenants of houses.
If the person walks away from the lease what becomes of their down payment?
It is non-refundable to the buyer. When they end their lease, I would be happy to help you fill the property again. I have a very active and growing list of buyers.
Who is responsible for upkeep and maintenance on the house?
The buyer is fully responsible for all maintenance and repairs.
The home has a mortgage. Are there any problems with leasing that would cause the “Due on sale” clause of the mortgage to be invoked by the lender?
No, a lender would see this as a 3-year lease with an option to buy, not a transfer of ownership.
Will the person leasing the home get the homestead exemption or would it be treated like a rental property? If treated like a rental property, when will the taxes increase without that exemption?
The house would be treated like a rental property. Eventually, the exemptions would be removed and the taxes will increase.
Please remember, you also get the benefits of owning rental property. I know that some people think that owning rental property is a big hassle, but I know that owning many rental properties is easy to handle when you set it up right.
You have several financial benefits by keeping your property and selling it as a lease option:
- Depreciation on the property. This is a good thing. You can deduct 3.64% of the tax basis (27.5 years depreciation) of the improvement of the residential property against either active or passive income (depending on how you are set up). On a $100k property, this would equal about $1k in real cash savings on your taxes each year. (Please talk to your CPA for details about how this works.)
- Appreciation of the property. Over time, the value of the property goes up. I know it’s been a rough patch in the market these last few years, but the likelihood is that the values will eventually go back up as the general population increases demand for housing. You can sell the property in the future and make a profit rather than have the potential (in many cases) of actually coming to closing with cash to sell it.
- Buy down of the mortgage over time. Over time, the fully amortizing note will pay off from the rental income. You may have years before this happens, but every month a little bit of your payment goes toward the principal and you are building equity.
- Rents go up over time as a hedge against inflation. The thing I love best about investment property is that the rents go up. I know of no other investment that is so responsive against inflation. Most houses have 30 year fixed payments, but as rents go up, if you apply the extra income to the mortgage each month, you will likely pay it off in 10-15 years because of the increased cash flow.
There are also some negatives to consider:
- Risk of vacancy. Over time, you will have vacancies. For each month that the property is vacant, you will lose money. The beauty of working with me is that I have buyers and can fill it very quickly. The risk of selling it on the open market is often much higher than selling it through me with a Lease Option. Keeping it on the open market, you must pay the mortgage, utilities, taxes, insurance, grass cutting, maintenance, and the wear and tear that comes from keeping a property vacant (did you know that the plumbing will often deteriorate in a vacant house because of lack of use?).
- Risk of damage from tenants. There is always going to be wear and tear on a house when someone lives in it. When they move out, you must clean up the house before you can sell it again. It’s also possible that someone will deliberately ‘trash’ your house. This is very rare and is covered by insurance.
- Management headaches. I hate the thought of managing property. A smart landlord makes a point NEVER to talk to any of the tenants. A competent property manager wants to do this kind of work for a fair price. The biggest reason people say they hate real estate investing is because they manage their own property. This, in my opinion just doesn’t make sense. Let someone else do it for you. They typically charge about 10% of the rent. If you like, I can recommend a good property management company.
- Picking a bad buyer/tenant. This is another mistake most novice investors make. They select a bad tenant. That is why I put them through a qualification process that vastly improves the tenant/buyer’s success rate.
In my humble opinion, the downside of taking on tenant/buyers is much smaller than the upside, especially when the alternative is a vacant house. I know that in a good market, 33% of all properties listed for sale on the MLS will NOT sell. Right now, that percentage is much higher. I also know that the houses will not sell for more than market value and that the cost to sell with a Realtor will run you about 10% after commissions, closing costs, repairs, and negotiation. For many people who have a mortgage loan near to market value, this cost just isn’t possible.
How will the tenant/buyer obtain financing when they exercise their option?
They go to any conventional lender and apply for a loan. The reason they are buying “Rent to Buy” now is that they do not qualify for a conventional loan. Since 2007, qualifying for a conventional loan is much harder, just ask any mortgage broker. That is why so many properties that are for sale by real estate brokers don’t sell. Buyers just can’t obtain loans with less than perfect credit. Appraisals have also been a problem recently, so even if the Buyer qualifies, if the appraisal doesn’t come in, they won’t be able to finance it.
My goal is to help good, responsible people get into a home. They will take care of it and treat it like their own. I had good luck finding just that over the years.
If the Buyer exercises the option, that’s great and you make your money. If they don’t, the advantages of having someone pay your mortgage and buy a house for you are enormous.
Selling the property on a lease with option to buy is the least painful solution. In fact, it may end up being the best financial decision you ever make.
I hope these answers give you a better idea of how this all works and helps you decide if it is for you or not.
Feel free to contact me if you have additional questions. If you are ready to go, just fill out the form and I will get my team started immediately. I will blast out the details of your property to my list and get it transferred to one of my buyer/tenants as soon as possible.