Rent To Buy

Hi A tenant of ours has contacted us and asked if we could enter into a rent to buy agreement with them, has any one here any experince with this?

Should we go for it or just hangon to the property

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Originally Posted by robo

Hi A tenant of ours has contacted us and asked if we could enter into a rent to buy agreement with them, has any one here any experince with this?

Should we go for it or just hangon to the property

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Do you want to sell? If so - how good is the offer? What are the terms? Do they simply want a second mortgage from you (a vendor mortgage) or some hairy scheme? Have they been reliable? Is their offer better than simply an open market cash sale? (It should be - or forget it.) Are they working - good incomes? Only you know the answers.

they have no deposit but really like the place Fungus, they are offering a little above the market, I see advertisments in the newspaper offering rent to buy and was wondering what the story is,ussual terms etc is it a profitable exercise, do you effectively act as the bank ?

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Originally Posted by robo

they have no deposit but really like the place Fungus, they are offering a little above the market, I see advertisments in the newspaper offering rent to buy and was wondering what the story is,ussual terms etc is it a profitable exercise, do you effectively act as the bank ?

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Enquire after the newspaper advts. and see how they are doing it. There are as many different schemes as you can dream up and every now and then one might be more popular, or the fashionable way of doing it. But you may not be able to offer the same deal as someone who has established themselves specifically to buy and sell this way. The only way I've ever done it, and it's a long time back that I used to be involved in the residential market, was to leave whatever was necessary as a second mortgage, and the purchaser found their own first mortgage. Nowdays that's not so easy as many banks require a percentage of the price to be the buyers' own cash, i.e. not borrowed. Ask other landlords - you'll find one who is a memeber of the Prop. Investors' Federation who will be up with the current method in your region? Or a word with your tenants to see what they have in mind. Remember too that any scheme that transfers ownership means you must immediately repay your mortgage. I have seen the odd setup where the buyer pays over mkt rental with the excess held towards the deposit until it is sufficient to enable arrangement of a mtge. Essentially though that means accepting today's value rather than the value at time of sale, all this is all a bit pointless if there is no contract specifying normal details such as possession date, price etc. But ask the tenants. You might find they have some completely whacky idea like 'we'll sign a six year lease as long as you credit all the rent we pay over that time towards a purchase'. (Don't laugh - cos once a tenant of mine couldn't see why I shouldn't accept an offer like that). Most importantly - run any scheme past your lawyer before putting anything in writing. Or if you can't find an cacceptable scheme - set out your tenant's financial position along with what they want and get your lawyer's opinion at that stage. Finally - askyourself why you are even interested in the whole idea. What makes it better than a standard sale, sort of thing, and how much extra risk is in it? Remeber until they have a reasonable financial stake involved, they can do a mid-night flit just ads many other 'wonderful', and 'just model' tenants have done over the years.

Thanks Fungas

plenty to think about will definetly talk to the lawyer.

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Originally Posted by robo

Thanks Fungas

plenty to think about will definetly talk to the lawyer.

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One more point I should have mentioned: never never ever promise or enter any agreement that is an option, or uses the word 'option' unless you fully understand what you are doing, and every single point of the deal is spelt out exactly as they would be on a real estate sales and purchase agreement. Otherwise it is an option to do what? If it's an option to buy with say no possession date, or no price then it might end up in court to set those points if the buyer choses to exercise his 'option', or he might front up with a market valuation and insist he wants to exercise his option to buy, and 'here's the price I will pay'. It's a dangerous term and often thrown around wildly when the intention was to grant a 'right of refusal'. A very different thing, so eliminate the word option from your vocabulary when talking real estate. .

i read a book by Robert Kiyosaki a year or so ago which went into Rent to Buy briefly. I recall thinking that the concept was a good one (from the home owners point of view) but it's not too common place in nz so never really took it any further. i can't remember which book exactly but part of the rich dad, poor dad series