Lease to Own Requests....A Top Ten Pet Peeve of Mine

OK so at least once a day I have someone call to ask me about a rental property, and at least 50% of those ask  if the owner would want to do a lease to own, land contract, lease purchase or some variation of the term. (Seller financing is a whole other topic.) Every time I want to scream, here is why.

They simply do not work, and one side or the other will get screwed. Usually the "buyer",  but as I can attest the owner can as well. 

So, on properties I own and rent,  I routinely say that I do not participate in those arrangements, I will however agree to sell the property to the renter anytime they want as long as they are in the lease with me. That's where I leave it. Here is why. There is no benefit in it for either side, even if it works out the risk is not equal to the reward. The good old days of a deal on a handshake, or assuming both sides are acting in good intentions are over. There are too many scams and "Get Rich Quick Seminars" preaching ways to work these deals in favor of one side or the other. 

Typical Scenario you will see offered (you know on all the yellow signs written in black marker all over town that say "Rent to own...3 BR....$895 a month" or something similar. )

Owner say yes they will do a rent to own. With $x,000 down, and $xxx rent per month. 

There are usually two reason for either party to want to enter into a lease to own or similar arrangement, so for simplicity I will do both scenarios for each party.

Buyer - Reason  1. - The buyer / "Buyer" is either not able to qualify for a loan right now and want to presumably have some equity building while renting and presumably repairing or correcting reason they cannot qualify currently. 

Reason 2. - They want to trap the owner into a situation where they can screw the owner out of the property and drag the legal process out in foreclosure action, which is costlier and takes longer than a simple eviction, or hope the seller will not be able to afford the foreclosure process and simply live rent free for as long as they can drag it out then skip town. 

Seller - Reason 1. - They want to rent the property out and and at some point sell it so why not allow them to pay down on it as they go along? This would ideally take the burden of insurance and taxes off them as well and on to the "New Owner". 

Reason 2. - They know the odds are the renter/"Buyer" will not or cannot ever actually buy the property and plan to keep the usually significant deposit when they do not. Often they place obscure terms in the contract to do just this easier. 

Issues: When any of the above takes place, the "buyer" may have created equitable ownership in the home. So now you are no longer dealing with eviction, if or when the renter decides to stop paying rent. 

Mortgage: Often the property has a mortgage on it from a bank or lender. So this is an issue, a big one. 

I have been in this business for several years, I own rental property, I have sold rental property. I have agreed to one of these scenarios over the years, and a partner of mine agreed for us in another. Neither have worked for either party. I still own the first one, I kept the deposit. They never tried or were ever able to qualify to buy the property. We left on good terms however and I still consider them friends. But we had a clearly written agreement to the terms. This is the number one mistake most people make, not having a clearly written contract stating all scenarios and how they will be handled. 

The second one, not so good. Lets just say that we are still fighting this one and it will cost us a lot. Why? There was no benefit in it for us, we should have never done it,  and the "buyer" is in my opinion on the side where they are trying to work the system to screw us. 

So if you are considering one of these, I suggest you reconsider. (And consult YOUR attorney)  If you do decide it is in your best interest to do so then carefully draft and review the contract and terms. Both sides.  (I am not an attorney and do not play one on TV, so this is not intended to be legal advice you must consult an attorney for that before considering any of these options, or a sell or buy anytime in the future.)

I would be interested to see what if thought you have on the subject. Good or bad. 

What to Look for On Your First Investment Property

Here is a repost of a past article that I find very helpful still....

What to Look for On Your First Investment Property
I have already given you my 5 tips to make an investment purchase profitable.
But until you have done several deals, you may not know how to decide how to make the first one. So here are the things I look for in the property itself, the actual physical real property. Here are the 11 things I consider when I buy a property and again there are others, and there can be limitless different scenarios, which is why I think you must consult a professional Realtor to help. But here is what I look for and what I tell me clients to look for. —Disclaimer this should not be considered in any fashion a replacement for a full property inspection by a licensed professional or inspector. Please have this done on ANY property you consider especially the first few. Any real estate professional can help you include that language in your contract, regardless of the seller. Auctions can be an exception so use caution.

1. Easy cheap fixes – Is a home not selling because it has a bad paint job? Old outdated wall paper, is dirty, or needs landscaping? These are easy inexpensive fixes that can be a good buying opportunity. Always plan to repaint any home you buy to re-sell, its and easy cheap way to make almost any home look better. Pay particular attention to curb appeal and the entrance and little things like door knobs, lighting, and light switch covers.

2. Kitchen – Old cabinets fixtures and appliances are a big expense, but often necessary. If the kitchen is a wreck it can be an opportunity to add value and possibly get a better deal. If the space is good however they are a great investment. If they are in good shape and in working order that is a big, big plus.

3. Flooring – I love to see old worn out carpet over hardwood! 8 out of 10 times if you can see hardwood you can refinish it and make it look nice. Pet stains are a big problem sometimes, but a lot of people like the used antiquy (sic) look of older hardwood. Beware that many homes seem to have one bedroom that has something other than hardwood under there, I am not sure why but they do VERY often, so always plan to re-carpet the bedrooms.

4. Windows – The worse the better. Nothing makes a home look and sell better than new clean high efficient windows. Unless they have been replaced in the last few years plan to rip them out and replace them.

5. Heat and Air Units – Look for newer units with good brand names! If they are old they are costly to replace. Remember the new 13 SEER regulation, the old ones soon may not be able to be fixed even if they are not real old.

6. Foundation – Look for cracks and undermining of the soil around the foundation particularly near the down spouts. These are generally bad, and expensive to fix. Small cracks are usually OK, as all concrete will crack, but displaced, shifting, diagonally cracked blocks are usually not good.

7. Layout – Not only the room dimensions but the layout and style. In my opinion ranches are the best bet to start, as they are pretty straight forward and less can go wrong. But often the bathrooms or kitchens are deficient. However this is often easily fixed, but again it costs money so keep that in mind.

8. Lot/parking – Consider the slope of the yard and how useable it is, fencing and privacy are good. Looking around to see what is behind and around the house is also important. Is there sufficient parking?

9. Electrical – Look for an updated service panel in an older home, and check to see if any panel is full, old school fuse boxes are usually not a good idea. This could mean that you have to spend good money to be able to add circuits or could be a dangerous situation. This is best left to a professional licensed professional but a quick look can go a long way initially.

10. Plumbing – This can be especially tricky in vacant homes that may or may not have been winterized. Frozen pipes are usually not discovered until too late. Also pay attention to the tub or shower, one that appears to be in good shape can save a lot of money as it can be saved.

11. Roof – If there is any doubt about the integrity of a roof plan to replace it. The key is to find a nice looking flat roof, with no missing, bent, or damaged shingles. Always look in the attic for signs of leaking and on the ceiling. Leaks are not always bad if you can find the source and repair them easily. Also since you are doing the roof it’s a good idea to have new gutters and downspouts put on too.