Rent To Own Purchase Agreement
I would like opinions of the following lease option terms.
This Rent to Own Purchase Agreement was presented to me by a prospective TENANT asking my opinion as it relates to THE TENANT.
• $5000 Option Money – will not apply to purchase price
• Lease payment will be the same as a 10%, 30 year mortgage plus taxes, insurance, and Garbage.
• TENANT may purchase at any time over 30years at agreed on purchase price (current market value) less accrued principal payments as evidenced by the amortization schedule for the 30 year 10% schedule.
• A thirty day late payment voids the option agreement.
• Credit score of TENANT is 531
• Agreement stipulates that the agreement not be recorded.
• Also states that if the DOS clause is triggered the owner will be responsible for refinancing.
I have seen the home listed n MLS for the same price the OWNER is asking as the option prce.
I figure that the OWNER has the home under contract for below the ask and is buying subject to – but am not sure. The owner is only getting $5000 from the TENANT. I also assume he is making his money on the interest spread. He will not, however, make any money on the appreciation of the home. I am also thinking that many of the lease option deals do not execute the options so the OWNER can take back the home and resell the option in this case.
Seems like a good deal for both.
Comments?
[addsig]
Gregg,
Here is a link to a topic that may help answer as to why this is a bad deal, http://www.thecreativeinvestor.com/modules.php?op=modload&name=Forum&file=viewtopic&topic=12125&forum=12 Specificly, loanwizard's post. If it's not, hopefully Shawn will chime in to clarify.
In short, I'd never do a deal where the option consideration is NOT applied to the purchase price IF the option is exercised.
An amortized lease + taxes, insurance, etc.? Sounds suspiciously like a mortgage loan to me. Possibly good for the tenant/buyer (as they would have to be foreclosed upon), but bad for the investor/seller.
30-day late to void is fairly common.
Agreement can NOT be recorded? No, wouldn't put that there. Free country and fair rights and all.
Who exactly is considered the owner IF the DOS is called? This is really the root of the problem. A L/O set up this way becomes a loan and produces equitable interest.
Roger
RAJ - Thanks for your comments. To clarify, the owner ( current seller) will refinance if the DOS is triggered.
Gregg
[addsig]
This is a bad deal for seller.
I would never do a 30 year lease option. Especially at current FMV.
Also if the terms of the L/O are written like they are stated in your message then if the Tenant ever claimed an equitable position, I bet that a Judge would agree.
Actually - I am thinking this may be good deal for the TENANT - esp. if we are in an appreciating market.
I do not think I would do this deal if I was the investor.
[addsig]
Just plowed thought the excellent post by loan wizard - reachable by the link above ---- thanks for the thorough review.
Gregg
[addsig]
..of course Im no expert, I just made a post cryingfor help myself,but this part doesn't look right anyway.
"TENANT may purchase at any time over 30years "
Id be wanting a set date on that.
As a TENANT I would take the deal all day long. They just don't get that good.
As a SELLER I would away very fast.
Terms are - well... nothing I would be associated with...
ever!
i second that..
Follow up-
This rent to own contract is apparantly widely used here in Fort Myerrs by an investor group that advertises regularly for tenants.
My adives to the desparate tenant was to not take the deal.
[addsig]
As a Tenant I would take it but we would have to take a few precautions first. I mean, geez, let me have it tied up for that long for current FMV? You bet. And if the contract states things the way that it reads in the first message then I have an equitable interest argument that I could easily make.
Granted, I would ride the LO for only several years but yeah I would most likely be in discussions with these guys.