Rent to buy agreements can make it easier to sell investment properties – even properties that you have had a difficult time selling in the past.
What is rent to buy? It is simply a form of owner financing. You act like a landlord and collect rent from tenants. However, you draw up a rent to buy agreement that stipulates that you will set aside part of your tenant’s monthly rent and apply it toward the purchase of the property they occupy.
As is the case with any owner financing situation, the agreement can be structured in any way that you and your buyer/tenant agree upon. In one common scenario, you could agree to set aside a portion of rent for a period of three years, at which point you stipulate that you have accepted that sum as a down payment on the property you are selling. And at that point, the tenant is entitled to use that sum as a down payment and buy.
For the tenant, some advantages are . . .
- A chance to get to know a neighborhood or property before making a full commitment to buy.
- The ability to designate that a portion of rent goes to a good use – a down payment on the property to be purchased.
- The ability to leverage ownership of a property with no down payment – or at the very least, with modest means.
For the landlord, some advantages are . . .
- A better chance that tenants will remain in a property because they are building up equity that they do not want to walk away from.
- The ability to advertise a property as rent to buy, which makes it more desirable than other properties listed in your area.
- A chance to sell a property for a higher price than you could get if the property were listed during a slow market period.
- A greater likelihood of attracting tenant/buyers who will take good care of a property because they intend to purchase it.
- The opportunity to generate income from a property that would otherwise be sitting vacant.
Before advertising a property as available through rent to buy, talk the idea over with your attorney. And keep him or her at the ready to draft rent to buy agreements for you and your buyers to sign. Remember, it is up to the seller to draft this document, not up to the tenants. That gives you an opportunity to be sure the deal is structured properly and according to terms that you specify.
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