Anybody ever do a rent-to-own on a house?

[Buehler445]

I've got my house on the market. In fact, I recently bought the house that I intend to move into, so I own 2 houses. Anyway, these folks contacted us and wanted to look at the house and in doing so asked if we'd want to do a rent to own agreement. I asked if they'd want to do a seller financed mortgage or a shorter term deal. They indicated they'd just want to do it for a couple a year or two until they can fix their credit, then get a note at a bank and move on.

I am going to get a hold of a lawyer tomorrow, but I was looking for sage CP experience on the issue.

[Buehler445]

Oh, they seem like reasonable people. They both have decent jobs and a kid. I'm guessing one of them trashed their credit before they got together, but that is just a guess.

[BucEyedPea]

I did, but my ex handled the whole thing. We made $20k on the arrangement and they did buy the house. That much I know.

[Hootie]

If you can swing it, just rent your house. You can make a killing renting houses while building equity. I would DEFINITELY run credit on anyone you'd rent to, though. Seriously. You don't want to rent to someone with shitty credit. They always have excuses, and sometimes it's the truth, but more often than not, it'll end poorly.

[Brock]

Nothing wrong with it if you just want to do something nice for them, but I'm a little suspicious of their reluctance to just do a deal now.

[BucEyedPea]

Don't just do a credit check but a background check. I think there's one called Tenant Check. Well, we have it in Florida.

[Buehler445]

Nothing wrong with it if you just want to do something nice for them, but I'm a little suspicious of their reluctance to just do a deal now.

I imagine it is because their credit is junk and they can't get a loan. Either that or they don't have the cash for 20% down to avoid PMI. They are renting currently.

I envision us doing a seller financed agreement until they pay off the balance (with a loan from the bank).

[Buehler445]

Don't just do a credit check but a background check. I think there's one called Tenant Check. Well, we have it in Florida.

He works with a cousin of mine. It's a small assed town. I can figure them out. I'll definitely look into it though.

[Hootie]

Take it from a guy who works in rental properties ... Renting to those with poor credit ends poorly 85% of the time

It's not worth it. Let's say you "rent to own" and it goes poorly. A) evictions are costly and take time to process. B) people that tend to get evicted don't tend to treat their landlord's property too kindly

Those with poor credit have very little to lose. On the flip side, those who have worked hard to build their credit have everything to lose.

If you can avoid it, never rent to anyone with poor credit. At the very least, get a guarantor or cosigner with immaculate credit. Don't be the only guy in a deal with something to lose.

[Bugeater]

Is the house going to be difficult to sell otherwise? Seems like an unnecessary hassle unless you have no other options but to sit on it for a while.

[Brock]

I imagine it is because their credit is junk and they can't get a loan. Either that or they don't have the cash for 20% down to avoid PMI. They are renting currently.

I envision us doing a seller financed agreement until they pay off the balance (with a loan from the bank).

They can get a new mortgage at any time after the credit rehab. If you offered a seller financed deal to me in those circumstances and I really wanted the house, I'd just do a deal and then refi later. I don't see the logic.

or did they agree to your financing? That's what I'm unclear about.

[BucEyedPea]

He works with a cousin of mine. It's a small assed town. I can figure them out. I'll definitely look into it though.

It's not expensive. Also, referrals may not be what you would look for. I've seen referrals not work out. We had lent $13k to someone doing a joint real estate deal who we actually worked with before and it worked out. His credit check turned out A-Ok. What wasn't on it? He owned all kinds of money to individuals which did not show on the official credit check. We got stiffed and he left town with our money. I never forgave the ex for that one because our own agreement as a couple was that deals like that had to be jointly agreed on. It wasn't just my spouses money. I never knew about it and it pissed me off. Whenever, we jointly agreed we always made money. Because I'd think of things he wouldn't and vice versa so it flushed out all possibilities. I would have never agreed to that one. He could have at least secured the loan with something he could take from the guy.

[BucEyedPea]

Also, there are certain friends, even family members, I'd never extend credit to. So the cousin point is no insurance.

[Buehler445]

Take it from a guy who works in rental properties ... Renting to those with poor credit ends poorly 85% of the time

It's not worth it. Let's say you "rent to own" and it goes poorly. A) evictions are costly and take time to process. B) people that tend to get evicted don't tend to treat their landlord's property too kindly

Those with poor credit have very little to lose. On the flip side, those who have worked hard to build their credit have everything to lose.

If you can avoid it, never rent to anyone with poor credit. At the very least, get a guarantor or cosigner with immaculate credit. Don't be the only guy in a deal with something to lose.

I understand. And I agree in principle. But I'm wanting to get the bastard under contract.

Is the house going to be difficult to sell otherwise? Seems like an unnecessary hassle unless you have no other options but to sit on it for a while.

Activity has slowed WAAAY down. These are the only people to look at it in almost a month. Given how much traffic there was early in the summer, I'd say the better probability is that I'll sit on it until spring. I'm not all that plugged into the market.

They can get a new mortgage at any time after the credit rehab. If you offered a seller financed deal to me in those circumstances and I really wanted the house, I'd just do a deal and then refi later. I don't see the logic.

or did they agree to your financing? That's what I'm unclear about.

I guess I'm not sure what you're asking. Rent to own was their idea. We haven't agreed to any terms, yet.

[Buehler445]

Also, there are certain friends, even family members, I'd never extend credit to. So the cousin point is no insurance.

True, but she'd sure tell me if he was a meth head or something (he's not).

[Brock]

If you can swing it, just rent your house. You can make a killing renting houses while building equity.

It depends. If he has a large amount of equity in his old house, do NOT make it a rental property. The sale is tax free if he lived there for at least 2 years.

[BucEyedPea]

True, but she'd sure tell me if he was a meth head or something (he's not).

Well, that's an extreme condition, there's all manner of things in between that and a saint.

[Brock]

I understand. And I agree in principle. But I'm wanting to get the bastard under contract.



Activity has slowed WAAAY down. These are the only people to look at it in almost a month. Given how much traffic there was early in the summer, I'd say the better probability is that I'll sit on it until spring. I'm not all that plugged into the market.



I guess I'm not sure what you're asking. Rent to own was their idea. We haven't agreed to any terms, yet.

All I'm saying or asking is, this would be a purchase agreement and not a rental agreement?

[Buehler445]

All I'm saying or asking is, this would be a purchase agreement and not a rental agreement?

That's the way I envision it. I have no idea what they're thinking. I'm not sure I'm interested in it without it binding them to a purchase.

[Jewish Rabbi]

Seems fishy to me.

You know who wants to do agreements like this? Poor people. And poor people always stay poor, regardless of any increase in income, because they'll just end up blowing it all.

[Iowanian]

I wouldn't even consider it if the buyer doesn't put some skin in the game. If they can come up with 10-15% then I would consider it. If they don't have anything to lose, they are just renting from you without deposit.

[MagicHef]

We explored it at one point with our rental house in Texas. Turns out it's illegal there. Basically because you're signing a contract that gives these people some amount of legal ownership in the house, without the bank that holds the mortgage having any say in it.

I'd just rent it if you're having trouble selling. I've done it twice. Once it turned out great, and the other turned out just OK.

[Brock]

That's the way I envision it. I have no idea what they're thinking. I'm not sure I'm interested in it without it binding them to a purchase.

If that house becomes a rental property you will have to pay taxes on a future sale. If you have much equity in it, it MUST be a sale.

[Brock]

We explored it at one point with our rental house in Texas. Turns out it's illegal there. Basically because you're signing a contract that gives these people some amount of legal ownership in the house, without the bank that holds the mortgage having any say in it.

I'd just rent it if you're having trouble selling. I've done it twice. Once it turned out great, and the other turned out just OK.

Yes. I had not considered that buehler may not actually own the house outright. This is 't going to work if there's a mortgage on it already.

[ghak99]

Is she hot?

There would have to be some serious fringe benefits in order for me to ignore that "fixing our credit" line!

[Hog's Gone Fishin]

I wouldn't even consider it if the buyer doesn't put some skin in the game. If they can come up with 10-15% then I would consider it. If they don't have anything to lose, they are just renting from you without deposit.

I've done many lease to owns as a landlord. Take Iowas advice and demand some type of down payment even if its just $2000.

Also it is illegal to do an owner finance if you still have a mortgage on it but a "lease to own" which is in all aspects the same is legal.

also I can provide you a blank Lease to own contract drawn up by my lawyer if it will help you.

[Reerun_KC]

I'll call you tomorrow and visit about the contract for deed I am doing right now. Your dad called and left me a VM tonight. So I figure it might be something around that? I didn't get a chance to answer. Wife had me busy.

[Buehler445]

Seems fishy to me.

You know who wants to do agreements like this? Poor people. And poor people always stay poor, regardless of any increase in income, because they'll just end up blowing it all.

They're young. I can see how young and dumb people can come around.

Yes. I had not considered that buehler may not actually own the house outright. This is 't going to work if there's a mortgage on it already.

That's good info. I hadn't thought of that either. I'm going to close out the loan tomorrow to stop the interest.

[BWillie]

Ive found renting to white 20 somethings with rich parents to be less than desirable

[Buehler445]

Ive found renting to white 20 somethings with rich parents to be less than desirable

I have no idea if their parents are rich. I doubt it if their credit is shot.

[BWillie]

It depends. If he has a large amount of equity in his old house, do NOT make it a rental property. The sale is tax free if he lived there for at least 2 years.

So if you pay off your loan on your home without the help of renters, you wont get taxed on the sale. But if you have 100% equity in your home, then move out and rent it you start to incur income on the home that would be taxed again thru the long term capital gains tax?

I think capital gains tax on residential homes is bullshit unless ur flipping houses. You are essentially taxed once up front on the rental income and then again on your homes sale if im understanding this right. Would you be able to elaborate?

[Brock]

So if you pay off your loan on your home without the help of renters, you wont get taxed on the sale. But if you have 100% equity in your home, then move out and rent it you start to incur income on the home that would be taxed again thru the long term capital gains tax?

I think capital gains tax on residential homes is bullshit unless ur flipping houses. You are essentially taxed once up front on the rental income and then again on your homes sale if im understanding this right. Would you be able to elaborate?

It becomes income property and yes, taxable. Hell, before bush 2 signed a new law, sale of your primary residence was taxable. You still can only claim a 250,000 dollar exemption if you're not married. That's a mobile home in california.

[Amnorix]

It depends. If he has a large amount of equity in his old house, do NOT make it a rental property. The sale is tax free if he lived there for at least 2 years.


THIS!!!

If you have any kind of significant equity in the house, make sure you understand the tax consequences of selling a primary residence versus an investment property. Believe me, it can be huge, huge dollars. Tax free versus 20%.

Before you do anything, understand what it means on the tax end of things.

[MahiMike]

Really comes down to if you want to be a landlord or not. I've done several of these with the intention of getting the house back, which happens most of the time.

You need to ask these folks more questions. If they are habitual renters, they will remain so. I'm guessing they had a foreclosure and can't get a bank loan. If so, those are the best folks to do this deal with. They have been primarily good people with one bad blip. Chances are they will take care of the place and also make the payments.

Only downside to this deal is that it may be harder to evict them. Not sure about Missouri but in Florida, we do 2 separate documents; lease and option. Do NOT put them on same document. You keep their option agreement, no copies. That way if they turn out to be assholes, you can easily evict them.

Again, not sure about Missouri but evictions are pretty simple and quick. You can get a tenant out in 30 days for about $400.

Best thing about lease options is that the money they give you up front is non-returnable!

[Dayze]

I'll call you tomorrow and visit about the contract for deed I am doing right now. Your dad called and left me a VM tonight. So I figure it might be something around that? I didn't get a chance to answer. Wife had me busy.



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[Amnorix]

It becomes income property and yes, taxable. Hell, before bush 2 signed a new law, sale of your primary residence was taxable. You still can only claim a 250,000 dollar exemption if you're not married. That's a mobile home in california.

Pretty sure the exemption is for PROFITS, not gross. So if you buy for $1MM and sell for $1.1MM, you can claim the entire $100K as exempt. $1MM being, of course, a small bungalow in Silocon Valley. :D

And, I I believe any amount can be deferred if you roll it into a new home, right?

[kccrow]

I wouldn't necessarily finance it yourself. I'd draft a lease purchase option agreement where they have the option to purchase, using an outside lending source, within a certain time frame (say 3 years), with your agreement not to sell the property to another party during the terms of the agreement.

[Dave Lane]

I did a couple times. They ran off owing money so meh...

[BigRedChief]

I took the job in Florida and we decided to move to Florida at the bottom of the real estate market. We were in the most desirable neighborhood on the Missouri side. In the High School, Junior High and Elementary school that everyone wanted to be in. The problem was the market was flooded with foreclosures and short sales.

We either take a $30K loss or wait to sell it. We came up with a lease to own option with a couple that short sale'd a house a year earlier. They needed another 2 years to be able to get a loan. They put down a non-refundable $10K in escrow deposit. If they don't buy that house at full market value in 2 years the money is ours and they have to move out. They pay the lease monthly. Miss 2 payments and they are out.

Ended up getting a lawyer because they said the agreement was for 3 years not 2 years. It would cost way too much to fight it so we let them stay another year.

They never missed a lease payment and did buy the house at full price. End result was good just way too much stress in between agreement signed and closing the deal. I guess it was worth $30K at the end of the day and whatever we paid with their lease money on the principle over the 3 years.

[Hamwallet]

FHA loan. 3.5% down and only takes a credit score of 620-640

[kepp]

Just my $0.02 - I used to have sub-standard credit...probably in the high 500's...but, over time, managed to fix it AND THEN bought a house. People with bad credit have bad credit for a reason. They haven't learned to handle money and they're undisciplined. That can be very tough rut to get out of. Personally-speaking, there's no way I would do a deal like that. They're basically asking for a handout because they've been undisciplined with their finances. IMO, if they get that handout they'll keep asking for more when they don't get a handle on their money.

"I'll have the money next week...seriously!"