Tag Archives: rent to own

Sapphire Rent-to-Own Solutions Can Make Possible the Impossible

The term “rent-to-own” sounds like a contradiction for good reason. It’s often called upon to reconcile a buyer-seller situation that does not fit a standard mold. A Sapphire rent-to-own agreement can allow potential buyers to move into a Sapphire house before their finances are up to snuff (or at least that’s the call most lenders would make). It can be a useful contradiction for both parties, because the would-be buyer can get the immediate benefit of living in their choice of home knowing that some portion of the rent paid has the potential of building residential equity, while the seller will either eventually have successfully sold the property or have benefitted from some cash flow should the sale fail to materialize.

If this rent-to-own scenario sounds like a win-win, that’s because it is…that is, unless it isn’t. The reason that rent-to-own is not more popular with Sapphire home buyers and sellers is because of some frequently encountered landmines—but a well thought-out arrangement can tackle most of the major ones. When both parties (and their legal counsel) anticipate the most likely future circumstances, among them will be:

  • Purchase price. This will be an amount that is agreeable to both parties…one that ideally will also seem fair at the future time when the deed changes hands.
  • Option consideration. To compensate the current owner for the loss of ability to sell the property to anyone else during the term of the rent-to-own agreement, a non-refundable amount (usually somewhere between 2%-7%) can be negotiated. If a portion of this consideration can be applied toward the ultimate purchase, it may increase the incentive for the rent-to-own tenant/buyer to complete the sale.
  • Rent. It’s “rent-to-own” because a monthly rental is negotiated—usually at a higher-than-market rate with a portion of the excess to be applied toward the purchase price.
  • Term. The length of the agreement—the amount of time the renter/buyer has to complete the purchase—is a key provision. A common reason that a rent-to-own agreement is desired at all is because the buyer needs time to qualify for a traditional home loan, so negotiating a sufficient length of time to accomplish that can be critical.
  • Ongoing maintenance. Spelling out precisely which party is responsible for which classifications of maintenance will prevent a common problem from cropping up. Especially in a situation where the tenant will not be completing the sale, the landlord will be keen to protect the property’s integrity.
  • And taxes, homeowners’ association fees, insurance—any and all details that need to be addressed so that both parties are aware of their responsibilities. Failure to anticipate any one of them can end in a dispute…and that benefits no one!

A Sapphire rent-to-own agreement can be a terrific way to realize a sale that would otherwise not be possible. The key is to anticipate not just the hoped-for, smooth-sailing outcome, but all of the obstacles that might crop up along the way. Rent-to-own is just one of the possibilities that an experienced real estate professional will help you to consider.

Be sure to give me a call when your sights are set on buying or selling a Sapphire home!

Lease-Option: a Lake Toxaway Rental Investment Owner’s Alternative

12-10-leaseSuppose your Realtor® helped you land a prime Lake Toxaway rental investment property—and you’ve been more than 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 Lake Toxaway 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 Lake Toxaway homeowner herself. Since she doesn’t have quite enough cash to qualify for a home loan, he told her she should go out and 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 underpinnings 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 specified 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. And a number of other issues may be addressed.

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 were an agreement that cried out for a trusted lawyer’s oversight, this is it!

Offering a lease option on your rental investment in Lake Toxaway is just one possibility when you’ve landed a choice property (which is where I come in). If you’re considering selling your Lake Toxaway investment property and would prefer a more traditional route, call me today!