1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

Offering a Home To A Lease Purchase or Rent-to-Own Buyer

You may be able to get a higher price, and some cash flow in the process.

By

Home for Rent

Home for Rent

iStockPhoto
Lease purchase or rent-to-own strategies are being used very successfully by real estate investors in all markets. Basically, the investor owns a home, or controls it through a lease purchase on the other side, and offers to let the tenant buyer lease the home for a set period of time with the option to buy it at a set price on or before a certain date.

What's Good For The Buyer in a Lease Purchase?

  • They may have credit problems that will take a while to resolve before they can qualify for a loan.
  • The down payment is out of their reach at the present time, but they can save and also apply some of the rent toward a down payment.
  • Owning is their goal, and they don't want to wait, applying their money and home care activities to a home they'll eventually own.

What's Good For The Investor in a Lease Purchase?

  • Structuring it for the desired time frame, positive cash flow can be the short-term strategy.
  • Potential buyers with credit and down payment problems may pay more to lock in a home they couldn't afford otherwise.
  • No added risk, as not exercising the option to buy leaves the home in the investor's possession without encumbrances.
  • Usually a reasonable "option payment" or down payment can be required up front, increasing the ROI for the first year.
  • That up front down payment also tends to keep the tenant buyer in the mindset to purchase.
  • The lease purchase agreement can require all or some repairs be done by the tenant, as they're considering it their home.

Planning an exit strategy on the front end is the best practice in real estate investing. Even if you plan on holding for the long term rental income, plans and markets can change. When it's time to sell, if the market is soft, you may find that a lease purchase will get a buyer into the home, and possibly at a price higher than you can move it in the current market.

The real estate investor who is using this strategy will do best if they maintain an active and up-to-date potential buyer list. Advertising on Craigslist and in classifieds that you have available "rent-to-own" homes will get you the prospects. Keep building your list and be sure to get enough information from them to fit the right home to the right tenant buyer. If you're trying to lease purchase on the front end and immediately place a tenant buyer in the property, you can search for owners with the type of homes your buyers want. This greatly increases your chances of a fast conversion and placement of your tenant buyer.

©2014 About.com. All rights reserved.