Arizona L/O First Time -- Need Advice
We're going to be purchasing a home in Arizona for which we already have a tenant lined up -- tenant doesn't have good enough credit to obtain financing right now (going through divorce), but will more than likely be in a position to buy the house from us in as little as six months. Is this a viable deal? Anything we need to look out for/be wary of? Also, can we just use a standard L/O form, or is there some specific AZ form we need to take a look at? Same question for the rental agreement -- anything specific to AZ that we need to be sure to include?
Thanks in advance! This is our first time doing this, so any advice will be greatly appreciated!
Hi crtgroup:
Sounds like you've got a decent t/b'er lined up...have you run a credit check? Be sure to disclose the option consideration is non-refundable if the t/b fails to exercise the option on or before the date, etc...do you have a mortgage broker you can put the t/b in touch with? It may be helpful to find a creative MB to help ensure the option goes thru & the t/ber can get financing in a year or two...if it doesn't (which I've read that 95% of t/b'ers don't purchase), then it seems you just market the property and do a LO again while keeping the non-refundable option consideration from the previous t/b'er.
Things get a bit ugly if the property is vacant (you pay your PITI & marketing expenses) until you find another TB'er, if a tb'er turns into a bad seed and wrecks your place, won't pay, etc...you should be familiar with your state eviction laws just in case.
You should really consider a decent rent credit to the tb'er to ensure rent is payed on time -- ie. if they rent isn't received by the 1st of the month, they lose their rent credit for the month.
There are lot's of standard agreements floating around the web, you should probably have a local attorney review them and amend them to suit your needs. I've heard good things about PrePaid Legal for a cheap legal counsel solution, perhaps someone else can comment about their experience with PPL.
Good luck!
JPLives4surf
Thank you!
I've been meaning to check into pre-paid legal -- no better time than the present!
When you get an interested renter you offer him or her a RENT TO OWN DEAL, especially if they have bad credit. You don’t reject the renter applicant based on bad credit. YOU MAKE MORE MONEY ON BAD CREDIT RENTERS. Why? Because they can’t get into a rental property or buy a property anywhere else.
Next, you offer a rent-to-own contract. You let them know that you will help them finance the property after 12 months (or 6 months, 3 months, whatever the agreement). And for an additional $1,500 to $2,500 fee (not including the security deposit) you can help them acquire the property. That $1,500 to $2,500 is their “down payment” that goes directly into your pocket as sort of like a “finder’s fee."
They will either go through with the purchase after the agreed time period or they won’t. Either way you keep that initial $1,500 to $2,500 fee. And you can charge more, like $4,000, if you want.
What if they don’t pay their rent on time? Then the whole deal goes into “breach of contract” and they are entitled to NOTHING. No refund, no property deal…Nothing. And you GAIN if they don’t pay!
Be careful with suspect tenant/buyers with real bad credit -- it's a formula for disaster. These people will not become buyers, nor will they treat your property as a potential buyer would. You then become a landlord, dealing with problems, repairs, phone calls, evictions, etc.
If you find a good candidate for a TB'er, not only will you have a tenant that pays their rent on time, takes care of your place, and is responsible for maintenance, you will also stand to make money on the back-end of the deal when they close on your property at the full option price you've set. No commissions, buyer pays closing fees, etc.
If you just want to churn tenants, why not rent the property rather than LO it? Then you don't have to worry your mortgage will be called by a due-on-sale clause which you are probably violating with the L/O deal.
My $.02.
JPLives4surf[ Edited by jplives4surf on Date 03/25/2004 ]
Just to clarify, we're doing the L/O deal to help out a friend, so we're fairly certain he'll purchase at the end of a year. We don't want to keep this property as a rental -- personally, I am not really interested in being a landlord!
Thanks again for all the input.