How do I (the owner) do a rent-to-own on my house? (tenant, appraise)
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My house in Teaneck NJ is for sale or rent, and has been on the market since last summer. I've reduced the price by 16%, but still no buyers (plenty of lookers, though!). A potential tenant has asked if I will do a rent-to-own.
Three questions, please:
1. What are the pluses and minuses from my perspective of doing a rent-to-own?
2. Does the tenant pay a premium over the rent to go toward the purchase price, and if so, how big a premium?
3. Some sites make it seem that in a rent-to-own, repairs are the tenant's responsibility. Is this so?
If you're having to ask these type of questions you should probably hire either a Realtor or Property Manager to help you. Not trying to be rude or insulting but it's the best advice I have for you.
You'd want a real estate agent or attorney. Lease options can be tricky because you need to know what your local landlord tenant laws say you can and can't do.
You also need to read your mortgage deed because an option agreement can trigger the due-on-sale clause for some mortgage deeds.
These are just a little too complicated for an online forum.
I do have an attorney, but am asking now at a preliminary stage so I'm better informed when I talk with the attorney. I guess what I'm asking about is more on the business side of things.
My house in Teaneck NJ is for sale or rent, and has been on the market since last summer. I've reduced the price by 16%, but still no buyers (plenty of lookers, though!). A potential tenant has asked if I will do a rent-to-own.
Three questions, please:
Shoot!
Quote:
Originally Posted by doctormike
1. What are the pluses and minuses from my perspective of doing a rent-to-own?
You will have some cash generated from the property rather than having it sit empty. I see a lot of homes that sit empty for a long time, and they tend to deteriorate from vacancy and neglect.
And you may get into contract with someone who destroys the place and walks away from their deposit and balance.
You may not be able to sell to a currently ready, willing, and able buyer since it is tied up for a year or two with the contract.
The home may appraise for less than the agreed price. No Deal.
If you have to retake possession, will you be evicting, or foreclosing? The laws in those distinctly different events are distinctly different.
If your attorney has any wits, he can describe multiple additional pitfalls, and possibly a few benefits....
Quote:
Originally Posted by doctormike
2. Does the tenant pay a premium over the rent to go toward the purchase price, and if so, how big a premium?
It is all negotiable and should be based on the home, price, comps, etc. Any premium should be earmarked and escrowed to put towards the down payment when the tenant/buyer goes for financing. It should be clear in the contract whether any or all of the overage above market rent is refundable.
Quote:
Originally Posted by doctormike
3. Some sites make it seem that in a rent-to-own, repairs are the tenant's responsibility. Is this so?
Advantage: Seller. Trying to get the tenant/buyer to feel they are owners, so they will take good care of the property. This way, if the Seller has to take possession back, they have a chance of not getting a trashed property back.
Question to be addressed in contract: May the tenant/buyer make improvements, and if so, how, if at all, will they be compensated if the sale is not consummated?
I presume you either have no mortgage or you've advised your mortgagee of this plan and it has no objection? That will be your first step to make sure you don't run afoul of a "not owner occupied" or "no rent" default provision in your mortgage.
Lots of people rent out their houses, and I suspect few, or none, send notices to the people who're servicing their mortgages. Nor do I think they care, so long as the monthly check comes in.
Rent to own is generally a better deal for the seller than the buyer. Your tenant will hopefully take better care of the property, may take on more (or even all) of the maintenance, and may even pay a premium, or option fee.
The only disadvantage to you, really, is you can't sell it. But if you could sell it, you'd have done that by now.
Just to add: Rent to own or a contract for deed can be terrible for the buyer because of the seller's ability to encumber the title without the buyer's knowledge. The buyer can fulfill the contract and find when she tries to get clear title on the house that there's a lien on it. She would have a right to the property, but it could be a mess trying to get the title cleared.
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