Typical Lease to own terms?

[Bearded Man]

I'm considering trying Phil Pustejovsky's idea of Lease to own single family homes. Right now I just rent them out.

I've had a couple of bites so far in my recon advertisement. Terms that I'm using are 3% of the property purchase price down, or a rent credit, that essentially takes a portion of the monthly rent and credits it toward a down payment. The right to buy expires after 3 years.

Thoughts?

Also, I know a lot of blogs say tenants own the maintenance for lease to own. I can see that for some stuff, but roofing? Plumbing? If they don't take care of the place and don't buy, I could be left with property damage galore. Hence why I think it's safer to specify that they own things like appliances, basic plumbing, but things like leaks and such need to be reported to me. Sure I could sue them either way, but if they are judgement proof it's just a waste of time and money, not to mention opportunity cost.

[NoNonsenseLandlord]

Just keep renting.  Anyone I know that did lease options wanted a rental income stream after they were gone.

3% down is not enough to protect you, you need 10%+.  And $200+ a month higher than the purchase payments per month in lease money.    What are you looking at in regards to credit score?

[Bearded Man]

Just keep renting.  Anyone I know that did lease options wanted a rental income stream after they were gone.

3% down is not enough to protect you, you need 10%+.  And $200+ a month higher than the purchase payments per month in lease money.    What are you looking at in regards to credit score?

Phil Pustejovsky claims he has had great success with this method. Not sure that people who could pay 10% down wouldn't just do an FHA loan. Credit score must be 650 or above. Again, if they don't buy it, the benefit is that I get to keep the money. That's a win for me.

[Larabeth]

I was under the impression that the best method was a combination of 3% and also rent credit.  I can't source that though...

Can you put a clause in the least that states they lose everything if you inspect and they aren't keeping up maintenance?

Another thing to consider is that you're having them pay their rent credit on top of market rent.  So if they're doing maintenance, you're making a higher profit while they're renting.  Even if they don't keep something up and cancel their right to buy and you have to repair it, you've still made more money in the long run.

[arebelspy]

The problem with doing lease options is that it's a job--you need to keep doing them to keep the money coming in.

You can make good money at it, but it's money being paid for you to find, negotiate, and buy properties at a discount, then rehab them, and then find, vet, and resell it to a quality tenant.

You're cashed out after a few years, and need to lather, rinse, and repeat.

Not something I'm a fan of, but if you LIKE doing those things, and want it as a side-gig, go for it.  It's not traditional "real estate investing," but rather a real estate business/job finding and creating lease option opportunities, but that's fine if that's what you're looking for.

There's a ton of things to watch out for, I've been to a number of seminars and looked at lots of contracts for them, and it's way too much to type up.  I'd suggest getting a lot of education around it before you pull the trigger, or you could get in a big mess.  Definitely look up your local laws around it as well.  Asking for "typical terms" (thread title) shows you have a lot to learn, but at least have a place to start!  :)

And make sure you read GCC's horror story about it also.

Good luck!