Lease To Own - Your Real Estate Investment Exit Strategy

If you have a rental property which you want to sell

, you could do it with rent to own. This is a great agreement - you end up having tenants who live in your home paying the rent and after some time, they end up owning it.

In this particular situation, it is typical to ask them to pay the standard rent lease while having a separate contract indicating an option to purchase the rental property over a set time frame. In the contract, you need to set the price of the property (it should be slightly higher compared to the current market value because you need to account for appreciation or inflation). Should the tenant agree to buy the property, you need to sell it at the same price you indicated. Of course, in another situation a tenant does not need to be obligated to buy it - they just have that option of making the purchase.

The usual scenario for rent to own typically begins with having a home that you are tired of managing and do not really need in the meantime. At some point, you usually consider selling the property. As soon as you get yourself a tenant, you can ask him if would like to purchase the house by the end of the lease period. If this is well and good for your tenant and he agrees with the price increase (again, accounting for appreciation and inflation) then he first signs a one year lease (which is standard) as well as an option to purchase contract. The tenant then agrees to pay his rent (and this should also have a non-refundable monthly fee). This is what makes the rent a little higher compared to the usual rent rates because it comes with the rent credit that allows the tenant to build his equity, which can then be used to make the down payment or even to make the purchase price smaller.

Of course, this rent credit must also be highlighted in your option agreement. If by the end of everything the tenant does not want to buy the home, then the fees that you collected are considered as non-refundable and are yours and yours alone. Alternately, you can also rearrange a negotiation for an extension of the option so your tenant gets a little more time for qualifying his home purchase. In such a case, you could also adjust the purchase price of your house because the price could have gone up in the months or years that have passed. If it did, then it is less appealing to sell it at the originally agreed-upon price because you can sell it for much higher.

Whichever way you choose, both are great situations if you want to sell it. You can make a higher return on the rent credits, or you could sell the property. At the same time, you get to help another person purchase a home which in any other situation might have been impossible for him to afford or even qualify for.

by: Beverly Manago

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