Long-term Tenant May Want To Buy

I will hopefully be closing shortly on my second investment property, which has tenants in place. The tenants have said they want to stay. After chatting with them a bit, I felt there was interest in buying the place.

It was never my intention to sell the property, but I never suspected the tenant was interested in buying, either. After reading the forums on this site I think L/O might be a good possibility here. As the situation currently stands, they are paying a good 10% below the monthly average for rents in the area (currently paying $490/mo versus $550/mo comparable), so I am planning on raising rent as soon as the sale closes. This sounds like the perfect time to bring up L/O with them, since they're going to have an increase anyway.

I've read that others charge an additional 5%. Is this 5% per month over the non-L/O rent? And what kind of up-front money does one ask for?

Thanks in advance!

Comments(3)

  • lildell14th August, 2003

    to enter into a l/o the terms and downpayment is up to you.

  • KWoolums14th August, 2003

    You are on the right track! What I would do is a perchase lease option. They give you a cash advance called option consideration money about 8-10%down. Based on the current market value of the homeplus the appreciated amount after ****Must Reach Senior Investor status before posting URL's***hen they pay around a $100.00 over market rent. They can use the option to buy after 1 year or you can make the term read 2 years. You will not pay capital gains if you own it more that 1 year. At the end of the 1-2 years you sell to them for the market price at that time.You will make a profit at the begging in the middle and on the ewnd. In the mean time try to help them qualify with a morgage lender so the purchase can go through. This is a great deal and you should be very happy. Best of luck!

  • MariaAZ15th August, 2003

    Thanks for the great info! We're trying to close before September 1, as that is when the lease comes up for renewal.

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