Suppose your Realtor helped you land a prime rental investment property and you’ve been more content with the result. Your longtime tenant proved to be conscientious and dependable, with resulting passive income that has been quietly building your bank account with very little oversight from you. In short, your rental investment has made you a very happy landlord.
But now, that smooth sailing may be nearing an end.
Your tenant rings you up with the news. Even though she loves the house, over Thanksgiving dinner her brother convinced her she should become a homeowner. Since she doesn’t have quite enough cash to quality for a home loan, he told her she should go out to find a rent-to-own property. But since she’s content with the house she’s been living in (your rental investment), she wonders if you’d like to discuss switching to a lease-option arrangement.
If you had ever contemplated cashing in on your rental investment, there are several reasons you might want to give it some thought. First, this would spare you the effort and expense of selling. You won’t have to wait for an interested buyer and you know from experience that your tenant is a solid citizen. Furthermore, whenever you put a rental investment property up for sale, there can be complications if you want to continue to rent it. Sometimes a tenant resents having to accommodate strangers tramping through their home. Worse, they may even subtly sabotage showings.
Although there is no single formula for how a lease-option (aka rent-to-own) agreement is constructed, some basic underpinning are common. The landlord retains ownership and the tenant pays rent until the option to buy is exercised. Both agree on the sale price and on the specific period of time by which the sale must be completed (usually the time the tenant estimates will be needed to qualify for a mortgage). As compensation for your agreement to refrain from selling the property to anyone else during this option period, the tenant usually pays either an up-front fee or agrees to a higher-than-market rent. Some of that overage may be set aside to be applied to the ultimate purchase. Property maintenance is often made the responsibility of the tenant, along with provisions in case he or she fails to maintain it properly.
But if the tenant does not exercise the option to buy within the specified timeframe, typically no refund is owed, the option lapses, and since the deed has always remained with the investment property owner, it becomes free to be rented or sold to another party...that is, if all local and state laws have been scrupulously observed and all other conditions met. In other words, if ever there was an agreement that cried out for a trusted lawyer’s oversight, this is it!
Offering a lease option on your rental investment is just one possibility when you’ve landed a choice property (which is where I come in). If you’re considering selling your investment property and would prefer a more traditional route, call me today!
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