During the process of fixing up my former home to sell,
someone looking for a house in the area drove by and “fell in love” with it. He is very interested in the house, but
cannot afford to buy it outright at this time (recently moved to the area,
insufficient down payment for a conventional mortgage, other credit
problems). He is currently renting a
home about the same size as mine, for what I would consider a reasonable rent
on my house, so he can manage that payment.
However I do not want to rent it, i.e. I do not want to be a landlord. That leaves me two options: owner financing and lease-to-purchase, either
of which he is amenable to. I am not in
a position to afford to offer owner financing, and I really don’t want that
hassle or risk.
So I am in the early stages of investing lease-to-purchase conditions. I would welcome the opinions, suggestions,
and advice of those with experience in this area. Ideally I would like to sell the house
outright, but the prospect of immediate and steady income is appealing; I don’t
know whether the house would sell quickly or sit on the market for months or longer. In my understanding of this transaction, the
seller’s risks are diminished by an option fee and rental premiums, there are
fairly strict conditions on violating the terms of the contract, and the buyer is
often required to maintain the house as if he owns it including handling many/most
repairs, alleviating the seller of the “landlord” responsibility. Additionally, the buyer has more of a stake
in maintaining the home’s condition if he plans to purchase it in the future (I
did SIGNIFICANT repairs and renovations on the house recently and do not want
it to fall into disrepair as houses can in rental situations).
Some of my questions include:
What length of contract is ideal/acceptable? I don’t want to be in this for too long, but
I know it will take some time for him to establish or rebuild his credit. At the end of the term, he will be required
to secure funding on his own; I will not be the lender.
What percentage of the sale is typical for option fees? I am also unclear about the refundability of
this fee, i.e. whether it is entirely forfeited to the seller if the buyer
decides not to purchase the house at the term of the contract or if some portion goes back to the buyer.
What amount is typically charged for rental premiums (fixed
amount or % of rent)? Is this added onto
the agreed-upon rent?
Is the contract subject to similar
conditions as a sale, such as home inspection?
Who is responsible for property taxes?
What are the tax implications for me for
this type of transaction?
Is this a reasonable consideration at
this time, in this market? I can “afford”
to keep the house, and if the buyer cannot meet the standards for
qualification, I am prepared to list it, but it would be nice to move in the
direction of selling it, even if slowly.
(It’s in a 20-year old single-builder subdivision in north Arlington near
360 and the Ballpark.)
If I proceed in this direction, can
someone recommend a real estate attorney with expertise in this area?
There are many questions to be answered,
both for my own information and about the potential buyer, but he is pushing
for a relatively quick decision so he doesn’t have to renew the rental he is
currently in. We have already loosely discussed
a sales price. Please feel free to be totally
honest about this prospect. I have
received some excellent advice from club members in the past and I value your
knowledge and input. Thank you in
advance for your kind consideration.
Mary Beth Vono
