Lease to own - get quality long term tenants and higher cash flow

 

As a rental properties investor, the most important thing is to have properties that are assets, not liabilities. This means receiving a good rent, keeping the house in a great condition, and having a good tenant. While it seems difficult to achieve all of this in today's tough rental market, it's possible with lease to own. Our years of experience of self-managing our own remote properties, without enlisting ineffective and expensive property managers, leads us to believe that giving tenants a lease to own option is a great way to ensure your properties will earn you money. Even if you use a local property manager, a lease to own plan still makes sense when compared to a stand alone rental only terms.

What Is Lease to Own?

A lease to own, also called rent to own, lease option, lease purchase option, or lease with option to buy, gives the tenant the right to purchase the rental property at some future time. In return for this right, tenants pay an option premium, which consists of a one-time fee when the contract is signed, as well as an ongoing monthly premium in addition to rent. This onetime fee at move in could possibly be in the form of security and pet deposits. The option premium becomes all or part of down payment on the house if the tenant exercises the option to purchase. If the tenant doesn't exercise this option, or cancels it prior to the end of the lease to own term, you get to keep the premium.

There are two types of lease to own options:

1. Short term lease-to-own
2. Long term lease-to-own

Short term / Traditional lease to own

A short-term lease to own ranges from six months to one year. This is not what we will focus on in this article. Our goal is to have a longer term, stable tenant. Therefore a short term lease to own contradicts our goal. short term is ideal if the seller is wishes to sell soon, yet finds this difficult to due to either the market condition or the buyer's inability to get a mortgage. The sale price should be agreed-upon by both parties when the lease to own is signed, since the time value is diminished or very minimal.

Long term floating price lease to own

On the other hand, a long-term lease to own option expires in three to five years. This is what this article is focused on. It is a more attractive choice for both seller and buyer. Due to its long term nature, the seller is able to collect more option premium and enjoy a lower tenant turn over rate. In addition, the buyer is able to accumulate a sufficient amount of the down payment and repair credit. This arrangement really works favorably for both parties.

The purchase price, traditionally, is pre-determined at lease signing. Our Do-It-Yourself Kit: Long Term Lease To Own sets a floating price within a price range, especially if it is a long term contract. This gives more flexibility and protection to both parties.