From the viewpoint of the real estate investor, a rent to own transaction is an excellent strategy to extract even more money from an income property. The key to the whole thing is that only a small percentage of people who sign a rent to own agreement ever actually follow through with the purchase, which frees it up to be offered as rent to own again, and again, and again…
To date, we’ve spent quite a bit of time discussing the incredible advantages of a strict income property arrangement, which is a simple landlord/tenant relationship where you own the real estate and plan to hold onto it for a long time. If you actually do not wish to sell a particular property, don’t bother with rent to own because it might get bought out from beneath you but, if don’t mind losing it on the small chance that the contract reaches completion, consider the following:
- With a rent to own agreement, the seller (you) receives a 5 – 10% down payment up front that is nonrefundable. Whether the renter buys the house eventually or bails, the money is yours to keep.
- You collect rent during the term of the lease, which might run 2 or 3 years or even longer. During this time, you’re being paid by the tenant as if this were any other landlord/tenant arrangement. This insures cash flow from Day One.
- No other landlord responsibilities!
That last one is a biggie because some tenants will drive you nuts with maintenance and repair requests. With a rent to own agreement, your tenant plans on owning the property some day, so inevitably takes better care of it and is responsible for any necessary repairs that arise. When the contract is up and the tenant cannot find financing to complete the purchase, the property reverts back to you and you can repeat the process again, collecting another nonrefundable down payment and signing another starry-eyed dreamer to a rent to own agreement.
And if you finally find a tenant that obtains the means to purchase, great! Good for you. Good for them. Deliver a nice bottle of wine for a house warming present and head down to your favorite real estate agent to find your next rent to own deal.
The Heroic Investing Team
Flickr / Dana Moos, Realtor
Tags: rent to own