Landlords often explore the lease-to-own option with tenants. This option carries many benefits. It can be especially appealing in down markets when properties are just not worth what they once were in a strong economy. If you are looking to sell your property, you can often explore the lease-to-own option with tenants instead of just renting. But one of the biggest challenges with this option is how you go about setting a sale price on your property for lease-to-own agreements.
Get Back to Basics
Landlords should factor in three main values: the current value of your property, the estimated value of your property when the agreement ends and the future market value of your property.
Select the Best Price for Your Property
If you want to gauge a property’s sale value based on its current value, you can easily look at the values of properties in your area. However, estimating the value at the time the lease-to-own agreement ends can be the landlord’s best option. In all likelihood, this number will be higher than where the property’s value sits today. The future market value is best determined by how much rent increases each year. This can open up more cash flow for the landlord at the end of the lease-to-own agreement. The hope is that rent increases will outpace inflation and allow the property value to increase.
Set a Wise Monthly Payment
Landlords in a lease-to-own agreement will want to set a monthly payment that is higher than what they currently receive for rent in the property. Monthly rents will not be enough cash flow for the landlord to put toward the tenant buying the property. The landlord needs to make sure the tenant has enough cash flow to not just pay the rent, but also to pay the monthly amount toward owning the property.
Look at the Mortgage Payment
Another easy way to set the sale price of your lease-to-own property is by using the mortgage payment as a gauge. Landlords can often set the monthly payment to be close to what the buyer would be paying if they were taking on the mortgage. Under these terms, the landlord allows the future owner to purchase the property without using bank financing.
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