# Rental Property - Creative selling ideas



## churchjt (Apr 26, 2010)

Looking for some ideas on my situation.

I have a rental property. It is rented with good tenants who are talking like they may want to purchase at some point but their credit and a lack of a down payment impacts their ability to get it.

Anyone have any suggestions or ideas on how to broker a deal that works out for both parties?

I had thought about rent to own but not really sure if that works for them. Wondering if its beneficial to get a lump sum up front or have money given to me each month? Seems like it would take forever to come up with $40 or $50K. Can I put them on the mortgage and work something out that way? Just afraid I could get hurt at some point. Ah who knows!

Thanks in advance for looking and your ideas.


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## the-royal-mail (Dec 11, 2009)

I think the best way for all involved is to do this the proper way. You don't need to try and save them anything or help their credit. You have everything to lose since if these people can't even manage their own credit how could you ever expect them to make their payments on time? If you finance them and ask for money every month YOU are the one who will have to chase after them for money when they have life problems.

Good tenants or not, anyone who wants to buy a house needs to go through the regular channels. You're setting yourself up for disaster here if you try to help them out. They have everything to gain and you, everything to lose.


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## Berubeland (Sep 6, 2009)

Rent to own is a formal arrangement that tends to benefit the owner. 

How it works is the tenant/owner typically pays more every month and this goes towards their downpayment. 

If they default or move they lose the extra dough they have paid. 

Furthermore usually such houses are above market prices so the owner benefits both by charging more money for the house, and getting the extra money paid in rent. 

Its truly a win win for the owner. The tenant/owners will usually take better care of the property as well. 

I suggest that if this option interests you and the tenants involved that you contact a lawyer familiar with this process to get more details. 

Usually when you see them advertised in the paper as rent to own they are selling a house worth $200,000 for $300,000 and it's in crappy condition. There are a lot of scammers doing this but that does not mean that it is not a legitimate way to sell a house. It can be very good for the owner. 

It also provides as you noted long term tenants. It will take a long time to save up a deposit and get a mortgage. This saves you turn around money and vacancy losses.


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## Four Pillars (Apr 5, 2009)

I agree with Royal, there is absolutely no advantage to you by selling to your tenants. 

If they can't buy a house the "normal way" then I wouldn't even consider doing any kind of deal with them.


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## iherald (Apr 18, 2009)

Four Pillars said:


> I agree with Royal, there is absolutely no advantage to you by selling to your tenants.
> 
> If they can't buy a house the "normal way" then I wouldn't even consider doing any kind of deal with them.


The only downside I see is if you are going to sell it now, versus the rent to own. If you planned on keeping the property, entering into this plan would 

a) lock in the real estate's value now
b) keep long term tenants 

Let's say they are paying $1,000 rent, and now pay you $1,200. I agree with the comments it will take a long time to get to the downpayment level. However, as Berubeland suggests, if in the next five - ten years, they decide they want another property, you get to keep that extra $200.

If the choice is to sell it now, I might do that. Depending on your thoughts on the real estate market, now might be the time to sell it and hold the cash.


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## Four Pillars (Apr 5, 2009)

iherald said:


> The only downside I see is if you are going to sell it now, versus the rent to own. If you planned on keeping the property, entering into this plan would
> 
> a) lock in the real estate's value now
> b) keep long term tenants
> ...


iHerald - I don't have any kind of financial logic to back this up but if I own an investment then I like to either own it or not own it. The rent-to-own deal is basically a long-drawn out sale which is not something I'd want.


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## sprocket1200 (Aug 21, 2009)

I agree with Four Pillars, a long drawn out sale is bad. what happens when the prices drop? they will want a decrease in the previously agreed upon price. as interest rates rise, these people will be able to afford less...

hmmm, come to think of it, everyone will be able to afford less as the rates rise. I wonder what that will do to housing prices? a quick drop or a long stall? seems like the choices are limited...


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## Berubeland (Sep 6, 2009)

If prices drop the purchase price is already agreed upon..... 

If prices go up hope for a default. In any case most of these properties are sold for top dollar so still nothing to worry about.


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## iherald (Apr 18, 2009)

sprocket1200 said:


> I agree with Four Pillars, a long drawn out sale is bad. what happens when the prices drop? they will want a decrease in the previously agreed upon price. as interest rates rise, these people will be able to afford less...
> 
> hmmm, come to think of it, everyone will be able to afford less as the rates rise. I wonder what that will do to housing prices? a quick drop or a long stall? seems like the choices are limited...


The way I see it is you should worry that the prices increase. You agree to sell your house today for $100, but you know it won't close for 7 years. If the prices drops to $80, you've still agreed to sell it for $100. You've gotten 7 years of rent and 7 years of the extra payments. 

If the price goes up, and it's worth $120, you've agreed to sell it for less. 

To me, I look at it and think it's an option to buy my house at a specified price. People do that all the time for land. They determine the value and someone pays a charge to be able to buy it for that price for a specified term. If at the end of the term the people do not buy, the owners pockets the money. 

But, as I had originally said, if it were my property and I wanted to sell it, I would sell it now. If I like the property and like the tenants, why not. But I do see the point that if you agree to this, you can't sell the property to anyone else for a specified period of time, thereby limiting the liquidity in the house.


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## Dana (Nov 17, 2009)

I know quite a few real estate investors who have done rent-to-owns. In fact our real estate agent is invested in a few of these himself. We have considered it in the past, but it is competitive - a lot of investors want to do these types of investments. 

It is very beneficial to the owner. There are two risks to the owner that come to mind with a rent-to-own scenario:

1. You are being forced into an exit strategy. If you are unable to find another profitable rental property with the proceeds of this rent-to-own, you are SOL and will have to find another source of cashflow or suitable investment.

2. Because you lock in the sale price at the outset of the contract there is the risk of the market going up more than you negotiated. For example, if the house is worth $300,000 today and you and the tenant agree it will increase at 5% per year over a 3 year rent-to-own term, your sale price would be $347,287.50. If however the market increases an average of 7% per year you would lose out on $20,225 in potential gains (however this can also work to your advantage if the market goes the other way). 

It is important to qualify your tenants for rent-to-own before you consider them. If they will not be in a position to qualify for a mortgage at the end of the rent-to-own term than they are wasting your time, their time and their money. I suggest you have them meet with your mortgage broker and get his/her opinion on whether they will be able to qualify given their income, credit situation, credit history, etc. A good mortgage lender will be willing to work with them and follow up with them a couple of times per year to help them along.


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## sprocket1200 (Aug 21, 2009)

um, people. if the prices drop and they decide not to pay, then you don't get your money, no matter what the 'agreement' was. this is not a forgone conclusion until you get all your cash.

sure, you can fight them in court and pay all the fees, taxes, etc, but what good is that?? you can finally claim 'winning' by ignoring all the costs?? 

classic RE mentality!


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