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The very best way is NOT to do this. So many vulnerabilities.
But the 2nd best way is to use a third party administrator to manage the deal. Just like mortgage companies use loan servicers, a TPA will do the same.
I don't understand why anyone wouldn't spend a few hundred bucks with $10's or $100's of thousands of $ on the line.
Exactly.
Rent-to-buy is usually a disaster, because there is no legit contract. Get it drafted by an attorney, and make sure to have it reviewed by YOUR attorney.
Many rent-to-buys are lower than Buy Here-Pay Here car sales, predatory ventures taking advantage of the tenant-buyer.
It is a method taught in real estate investment circles.
Location: Sarasota/ Bradenton - University Pkwy area
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As the others are saying, find a local real estate attorney to draw up the paperwork for you, this is not a do it yourself kind of project.
In over 20 years in real estate, I've been involved in one lease option to own situation and it actually worked out. The purchase agreement was drawn up with a lease purchase addendum that spelled out the terms of the option portion, and there was also a separate lease agreement for the rental portion.
The contract terms included a percentage of rent held in an escrow account until the lease term is up and the buyer closes the sale. There was an upfront down payment before the buyer/lessee moved into the home. Rent was slightly higher than the market value to allow some of the rent to go into escrow toward the purchase of the home. At the end of the lease term, the lessee/buyer had the right to exercise their option to buy the property at the contract terms. If the buyer had not exercised their option to purchase the property at the end of the lease period, the up front option payment and monthly amount put into escrow towards the purchase would have been forfeited to the seller.
There can also be tax consequences for a seller doing a lease option sale, so be sure to consult with your accountant as well before making a final decision.
I don't understand why anyone wouldn't spend a few hundred bucks with $10's or $100's of thousands of $ on the line.
Absolutely the correct answer. I had a situation acting as a buyer's Realtor in an identical transaction. I ultimately I had to suggest my client do the same thing. Unfortunately, the seller got cold feet before we reached the stage as far as writing a contract. A lot of technicalities and things that could go wrong in the process.
OP, the answer is have an attorney prepare the agreement, as already stated upthread. Your query is far too broad to generate any other pertinent advice. What does "protected" mean? A legally sufficient contract is the only real protection for anyone in the deal.
By design, this type of agreement requires both parties to take risk. There is only so much "protection" one can enjoy and still participate in one of these agreements. The contract outlines the penalties and the parties agree.
There might be a thousand reasons to use this type of agreement, but the most common is based on a buyer that currently lacks the financial means to qualify for or make a purchase. Under this premise, the seller is bypassing the market for a single Yes or No option contingent upon financing at a fixed date in the future, usually a few years. To me, the conditions that make this type of agreement viable are rarely worth it to either party. As a seller, if my goal is to sell, there are better ways.
=WorldKlas;58676973]The very best way is NOT to do this. So many vulnerabilities.
I also recommend not hiring an attoney. Lawyers are known for structuring vague wording, that can lead to legal disputes later, and setting up scenarios for "stirring the pot" for drumming up future legal fees. I've seen this so many times.
Simply add to a lease the wording, "If owner places property up for sale, then tenant will have the first right of refusal." But even this comes with a can of worms too, especially with setting the current market appraised value and price in a market that may be rapiding changing.
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