Tenant Buyer wants Long Term Deal - Posted by Kevin

Posted by Luke Hoppel on March 21, 2006 at 17:33:04:

Sounds like your in a fine situation. Here are some things to think about:

Perhaps take a little more as a deposit.
4% increase per year is good.
Depending on your market you can choose the final purchase price.
If you have good tenants and no immediate need for cash, I would do it.

Tenant Buyer wants Long Term Deal - Posted by Kevin

Posted by Kevin on March 21, 2006 at 17:26:58:

April 05 my tenant/buyers signed a 2-year lease agreement with an option to purchase the house at a price we agreed upon, with $300/month rent credits.

Now 1 year later, their credit score has actually gone down below 500, but they love the house and are asking me to do a long term lease situation still with a portion of the rent going towards the purchase price, while they bring their credit score up and get a loan to buy the house.

Does anyone have a suggestion on how I should best handle this? The t/b said he would agree to a 4% rent increase every other year and to adding 10k to the purchase price.

The t/b’s are great tenants and are always on time with rent, never have a complaint, etc.

I’d like to work out a win/win situation where I make more of a profit and he gets to buy the house within 5 years or so. Is there a better way for me to do owner financing than through a long term lease/option?

Thanks for any input!


Re: Tenant Buyer wants Long Term Deal - Posted by Natalie-VA

Posted by Natalie-VA on March 22, 2006 at 18:10:44:


rent-to-own gave you the best answer. I don’t see why you should convert this to a sale and note with their crappy credit. Keep them on the lease and adjust every year.

They’ve still got another year left on your original agreement. If they really want to buy the house, they will start working with a mortgage broker NOW to figure out exactly what to do over the next year to qualify.


Re: Tenant Buyer wants Long Term Deal - Posted by rent-to-own

Posted by rent-to-own on March 21, 2006 at 19:40:04:

I would not give them a long term. I would only renew on a year to year basis. Don’t let their problem become your problem.

If they can’t buy at the end of their term then I would only renew for another one year term. After adjusting the rent and the option price to compensate for any inflation.

Giving a $300 rent credit every month over a long term is foolish. You can’t get $300 per month in principle reduction on a mortgage so why would you just give all your equity away like that? If I were going to continue to give a $300 rent credit you can be sure I’m going to be bumping the option price up each year as well.

Only go one year at a time. Adjust the option price each year to reflect any inflation and raise the rent accordingly.

Re: Tenant Buyer wants Long Term Deal - Posted by steve

Posted by steve on March 21, 2006 at 19:10:03:

since they have rent credits going towards the purchase price, wouldnt this give them a chance for equitable interest if they were to default and force a judicial foreclosure?

Re: Tenant Buyer wants Long Term Deal - Posted by RogerN

Posted by RogerN on March 21, 2006 at 18:36:51:

You can change from LO to a note with a balloon and report their successful payment to the credit bureaus to up their score. You might see what note buyers look for and you may not have to hold it very long either. You can also charge whatever interest you want too, within reason.

Re: Tenant Buyer wants Long Term Deal - Posted by Rich

Posted by Rich on March 21, 2006 at 18:15:50:

I assume you have a mortgage on the property. If not, you could do seller financing where you become their lender. Just make sure your Note allows you to do what any bank could if things go wrong.

If you have a mortgage, then lease option is the only way you can go. You could make this some sort of a “loan” so that you can report their payments to the credit agencies, helping them lift their score so they could exercise the option.