November 1st, 2009

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Long Term Lease to Own – Part IV – Tenant FAQ

Here are the common questions tenants ask when they evaluate lease to own. It is essential to engage an open communication with tenants. They will feel more comfortable and have a good understanding of such commitment.

Q. Can I buy the house earlier?

A. Typically you will want to keep the tenant so you can enjoy a tax deduction on your mortgage (if you have one), and on property management costs. So letting the tenant buy early does not benefit you as much. However, what you should address to the tenant is their ability to buy. It is to tenant’s benefit to engage a longer term, which allows them to save enough down payment, to repair their credit and so on.

Q. What happens to my option premium if I decide not to buy?

A. If in the end the lease term, the tenant decides not to buy. You can structure to return part of the option premium so both parties don’t have a complete loss. However, if during the lease term the tenant decides to move out or default on the rental, then no option premium is refunded. In the case of owner defaulting, then the tenant will be entitled to a full refund. Structure it so it’s fair to both parties.

Q. What happens if I cannot get a mortgage?

A. Encourage the tenant during their term to act their best by paying rent on time, taking good care of the house. In return, owner financing may be provided should the tenant not be able to get a loan from the bank. You, as the long-term landlord, can also be their best reference to the bank when your tenant tries to take out financing from the bank.

Door to great opportunities

We highly recommend the owner market the lease to own right at the start of tenant recruiting. The current housing market and economy have created an unique opportunity to attract former homeowners whose home has been foreclosed. These former homeowners can afford the rent and option premiums, just not the skyrocketed sub prime mortgage payment. They are eager to become home owner again. A lease to your own house is absolutely more appealing than a regular rental house, because they are able to save for a down payment, rebuild their credit, possibly obtain owner financing, and have a sense of home ownership.

If you currently have a regular non lease to own tenant, it is never too late to convert to a lease to own contract. Start introducing the lease to own opportunity to your tenant, and understand your tenant’s intention and plan. Follow this advice, and you will be on your way to turning your property into a prosperous real estate asset.

Read Part III «

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