There are three ways to look at the concept you put forth. One is "1st refusal" meaning that you would rent to someone--and give them the first refusal to purchase the home at an agreed upon date, like the end of their lease. This has no teeth for the landlord, and is only a "bonus" for the tenant.
What you want to do is sell an "option" to buy your house at a specific price and time set in the future. The owner of the option does not have to perform, but the option gives them the "right" to buy the home at a preagreed price, what you get in advance is to keep the money that they paid for the option.
The option cost--let's say it's $5,000--can be applied to the purchase price or not, depending on how the contract is structured. But to be clear, if I pay you $5,000 today for the right to buy your house for $150,000 in 12 months, at the conclusion of the year I have three different outcomes. First I can "exercise the option" and buy the home as agreed. Or, I can sell the option to another person who can exercise it. Or, I can let it expire unused. In any case you keep the $5,000.
Finally the rent to own case that you suggest. In that case you rent out the home for say $1,000 a month. (My numbers) You set aside some amount, say $200 a month for each month of the lease and it can go to a savings account or some other safe haven. Then say in maybe 4 years (or 48 months), if the tenant wants to buy the house, you will rebate him the saved $9600 toward the price of the house (it might be structured as savings to be used as a down payment). If the tenant chooses not buy the house, then you get to keep the money.
These ideas become contracts and need to be written by a professional, so if you move in this direction , be prepared to engage a real lawyer.
There are a number of things to consider in the approach you want to take. At my website there is an article entitled Understanding the Lease Purchase. I have also recently updated this article, but have yet to post it although I would be glad to email it to you.
First of all, typically when this type of arrangement is done, the tenant pays a non-refundable fee to have the option to buy the house within a certain amount of time at a certain price. How that fee is handled prior to sale depends on the tenant/buyer's situation and their lender so it is important to have a lender involved who understands lease purchase transactions. Yes, that is right, the lender needs to be identified now even though it may be a year or so until the sale occurs. Also as part of the monthly rental, a non-refundable rent premium is usually collected and applied to the purchase amount.
One of the main things to keep in focus is what the tenant is responsible for and what you will continue to be responsible for as the owner. For the tenant, this is a test drive, so it is a good idea to have the tenant buyer do his due diligence before the lease starts. After that you would be responsible for covering general repairs and insurance losses until the house is sold. However, you can foresee the possibilities of trouble here.
The other challenge that you face in what you want to do is deciding with the tenant who will bear the risk of changes in value before the tenant buys. The article does not cover this, but we have recent experiences that can provide some ways to handle this.
Finally, a tenant buyer typically pays for the seller's attorney to draw up the lease purchase document as the standard Realtor forms may not anticipate the kinds of issues that come up. This payment can be treated as part of the transaction. Youwill want an attorney who deals with these types of transactions regularly.
Chuck Braxton, REALTOR GRI
Roche Realty Group, Inc.
Lee P. Johansen
BH&G, The Masiello Group / Bedford
72 South River Road
Bedford, NH 03110
Office: 603-625-2800 X310
Licensed in New Hampshire
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