Rent to Own - My Secret to Pain-Free Investing
Why Lease Options Maximize Profit/Miminze Headaches
The "rent to own" investing concept is a highly successful business model. It works for selling TV's and for selling houses. Learn about using lease options with remarkable results. If you've ever worried about not being able to rent your property, using this strategy guarantees the shortest time between tenants.
The reason is that it fills a need. Owning your own home has been described as part of the American Dream. Yet, there is a large segment of the population that doesn't own a home and for them, a rent to own home is a dream fulfilled.
Traditionally, landlords rent property on a monthly or annual basis. Typically a one month security deposit is required. The security deposit is to pay for any damages the tenant does to the property.
But, in truth, everyone knows that the tenants are going to try to take advantage of that by not paying for the last months rent. Our courts systems are favorable towards tenants in this regards. By the time a landlord can get an eviction order the tenants have already taken advantage of a free month of rent. So, as a landlord, you have to pay for any tenant caused damages out of your own pocket.
As a landlord, I've been on the receiving end of these type of tenant tactics far too often. Some landlords will try to get two months rent as a security deposit. However, there is usually too much competition for tenants to find a renter that will agree to such a large security deposit.
Another tactic is to offer less than market rent to entice tenants to stay in the property. So you either lose a months rent while the property is being cleaned up or accept less money to keep it occupied. In frustration, landlords often chose to pay for property management rather then deal with tenants.
The solution is to use a lease-purchase agreement. The details of the lease-purchase agreement are described here. In general terms, the tenant signs a lease agreement with a refundable security deposit and an option to purchase with a non-refundable option fee. I agree to count the option money as part of a future down payment on the property.
In addition, I provide the tenants with a rent credit if they pay their rent by the first of the month. The credits can be added to the option money as a down payment if the tenants purchase the property. This is key to reducing headaches of non-paying tenants.
The other part of the rent to own homes concept is that tenants will typically pay a premium rent for this arrangement. I've gotten anywhere from 10% to 50% higher rent than other area rentals.
A rent credit will offset the higher rent in the mind of the tenant (sort of like a forced savings plan). And a healthy rent credit encourages on-time payment.
The final benefit of using a lease-option concept is in advertising costs. I have found that spending money for newspaper adds is a total waste of money. Craigslist provides free real estate listings and I sometimes get a response from these on-line, free ads.
But the big draw for attracting tenant-buyers is a simple yard sign "rent to own". I have always gotten 50-100 calls per week by the simple act of putting up a yard sign (sometimes for out of the way houses, I put a smaller sign with an arrow and address on a busy street).
From my many experiences, the lease-purchase/RTO concept far exceeds any other model of investing in rental property.
The key to renting your property out quickly is to 1)know comparable rents and 2)not get too greedy with pricing or the premium you charge. If you are priced right, using the lease purchase rental strategy provides quickest re-rental if a tenant-buyer leaves. In 7 years with this strategy, the longest one of my houses went empty was one month - which was covered by the lease-option money that the previous tenant-buyer forfeited.
Explore the rent to own homes investing concept in more detail.
Find out what Rent to Own Investing is
Learn more about what types of
rent to own agreements
you should use.
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The materials contained on this website are provided for general information purposes only and do not constitute legal or other professional advice on any subject matter.
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