Some of the "what if" questions that will arise from the seller:
- What if the tenant does malicious damage?
- What if the tenant files a frivolous (or not so frivolous) lawsuit?
- What if I can't afford repairs
- What if the tenant defaults?
We work with several companies who offer 100% coverage in each instance, as well as 6 months of lease payments if the tenant should default.
Since we are not Realtors, we do not advise on market rental rates, comparative values, or negotiations between the tenant and landlord.
I agree to have an attorney involved. But, you need to decide why they cannot buy the house now. if it is becuase of credit worthiness; then make sure you speak to the mortgage person and ask them what the feasibility of them getting a loan by the end of the lease purchase term is like.
I usually ask for 2% of the sale price as a non refundable deposit to do a lease purchase if they are going to do a FHA loan. if they are going to do a conventional loan I ask for 5% to 10% depending on what they are putting down.
Make sure you ahve na agreed upon payment plan that falls in line with what the mortgage payment is goign to be. if the seller is not goign to be whole ask that the attorney collect the rent payment and pay the mortgage with it. that way the seller does nto skip out on paying the mortgage and lose the house and the buyer is out all that money....
I try to do them for as short a time frame as possible...6 months to a year is a feasible time frame.
Also, in this market you have to have a pre negotiated sale price. but need a contiengency in there if the house appraises for less..Who is responsible for the difference?
I agree with Kathleen Turner. You need to work with a real estate attorney to draft the lease and the offer to purchase and contract. At this time in the practice of NC real estate law, the lease purchase is recorded at the Register of Deeds on the property (this is a new practice). If the tenant violates the lease, then what happens with the purchase contract?
I favor the lease option with a non-refundable deposit. The right for the landlord void the contract if the lease has been breached. Likewise, the buyer has to be protected from a landlord who many not be making mortgage payments. The attorney needs to search the title to make sure there are no liens on the property. My husband is a real estate attorney who does this work, Yates W. Faison, III. You can catch him in the office at 704-896-2216.
A deposit of a few thousand dollars (decided between owner and tenant) is accepted with legal contract outlining how long the lease is for and when option needs to be exercised (usually one year). Both parties agree on a price that the house will convey for at that time--the tricky part. The seller wants a lot of money thinking that values will go up. The tenant wants a low price expecting prices to keep dropping. At the end of the time period if the tenant does not buy the property the landlord keeps the deposit money. If the tenant does buy the property the few thousand dollars is used toward down payment. Another option is a minimal amount up front (still at least a couple thousand) and a portion of the tenant's rent each month goes toward the down payment. Either process works but I always advise my client--whether the buyer or seller -- to have their attorney advise them upfront and don't make promises unless you've had legal advice.