Anyone knows how to set up'Rent to own' contract
- Thread starter rainbow
- Start date
Our rent to own contracts are in 3 parts.
First is the residential lease
Second is an Option to purchase
Third is a Purchase Agreement
Ownership will not transferred until the day they make their final payment, or they obtain finance and pay us in full.
You should have an idea of what the contracts shoud included, and then have your solicitor write it up in "legal terms". Then the tenant can take the contracts to their solicitor for advice.
We have had one tenant default and walk away.
We have 2 others at the moment, who are continuing to make payments.
Unless they continue to purchase, our tenants never own anything, and all option money is considered rent.
First is the residential lease
Second is an Option to purchase
Third is a Purchase Agreement
Ownership will not transferred until the day they make their final payment, or they obtain finance and pay us in full.
You should have an idea of what the contracts shoud included, and then have your solicitor write it up in "legal terms". Then the tenant can take the contracts to their solicitor for advice.
We have had one tenant default and walk away.
We have 2 others at the moment, who are continuing to make payments.
Unless they continue to purchase, our tenants never own anything, and all option money is considered rent.
Kathryn D,
Can you tell me more of how you structure the price e.g. market rent + higher sale price or higher than the market rent + market sale price.
What's time frame you give to tenants beofre option to purchase expires?
Tenants have been living in the property for years and love to buy property. They couldn't get the finance due to low income and bad credit history.
Can you tell me more of how you structure the price e.g. market rent + higher sale price or higher than the market rent + market sale price.
What's time frame you give to tenants beofre option to purchase expires?
Tenants have been living in the property for years and love to buy property. They couldn't get the finance due to low income and bad credit history.
We seem to offer each property differently.
Our first property was PPOR. We picked a number that was about 25 % more than we figured we could get if we sold it.We asked for a donwpayment (1%) of the purchase price.We also required an Option, which would be used towards the downpayment of the house if they opted to buy.This was 4 % of the purchase divided by 24 months.The tenant was also required to pay market rent. The tenant had 24 months to get a mortgage and buy it from us, or the 1% downpayment + 4 % option payment were ours and was considered rent. During this time tenants were respnsoble for ALL maintenace and repairs. If they tore up carpets, they were to replace them with suitable flooring etc. During this 24 months their intention was to improve the value of the property, and make it easier to get finance.....It didn't happen. They caused 15K damage and skipped 15 months later (we go to court when we return in May, this time with a lawyer)
Second property we purchased specifically for a tenant.Same rules as above, except we added 25% to the real estate purchase price, and if we negotiated a better deal, that was extra bonus for us.We made their rent to be the same if they required a mortgage payment for the purchase price +1 % downpayment +4 % Option payment.
These already know they will not qualify for a mortgage in May 2011. They asked us last year what can be done...
We told them we will increase the rent a "stated %" each year, for the next 8 years.We will also hold the purchase price for this time period. (our properties generally do not increase as fast as Australia)
We know nothing will change and in 8 years they will still not be able to purchase..but the property will be almost paid off..all repairs and maintenance done (they already added a new roof, and repaired septic)
and we will have received a fair market rent.
Third property was a mobile home on a parcel of land.We paid $20k for it (we pay $1k a month for 20 months to the vendor). In turn we offered it as a rent to own for $750 month for 10 years.No downpayment or option payments. The contract simply states if they pay their rent on time for 10 years, at the end of the contract we will sell the property for $1.00 (one dollar) If they want to buy the property early..they pay out the entire contract.Tenant is still responsible for all maintenace and repairs.
There isn't "one size fits all".
We always pay the property insurance and taxes, as our lawyer advised us it would prevent the tenant to ever have a claim on the property.Tenant is always required to carry Tenant Insurnace, to cover their liability.
We informed our lawyer what we wanted the contract to say, and he wrote them up, and added anything we may have missed.
We gave the tenants an opportunity to take the contract to their lawyer (none ever did).
Hope this helps you a little bit.
Just make sure anything you include in your contract is legal in your jurisdiction
Ours are in Canada.
You will need to do some research about whether you have restrictions.If there are rstrictions, you may just need to word the contract in such a way, to get around them
The strange part, which our tenants who defaulted and did damage was when we applied for a hearing with the RTA.
The Director insisted it didn't fall under her jurisdiction, even though it quite clearly states it does in the RTA. We didn't care, as we would have appealed her decision anyways ( she isn't very knowledgable).That is why we are off to Small Claims in a few months.
Our lawyer happens to be a judge in the small claims court, so hopefully he covered our butts
He isn't representing us in court, but his law partner is, who has an even better reputation for civil law.
