DO YOU NEED TO MAKE

the most money possible on the sale of your home?

We can help!

Plug in YOUR numbers

There are four main ways people sell houses these days, each with their own Pros and Cons. Most people know about selling with a realtor, selling FSBO (For Sale By Owner) or even getting a cash offer from an investor looking to make a profit. However, a little known secret, and potentially the way to squeeze the very most money out of your property possible is through a Lease Option, also known as Rent-to-Own. We will explain below a little more about what it means to Rent-to-Own, but first let's look at some numbers and see what I'm talking about.

To the right (or below on a mobile device) you will find an app that will compare for you the net proceeds you would make using each of these four methods of selling. You will plug in certain details about your property (asking price, repairs needed, mortgage balance, taxes etc.) and you can compare the estimated net proceeds to you depending on the way you choose to sell your home. If you click on "Get Your Full Analysis" you can print a copy of the PDF showing all of the comparisons in more detail. 

*Certain factors are assumed based on national averages (length of time needed to sell, realtor commission, investor discount etc.), and may not reflect your exact situation.

Pros and Cons

Let's take a closer look at some of the Pros and Cons with each of the different methods of selling.

Realtor

PROS

  • Professional service

  • Likely to sell more quickly than FSBO

  • Help getting the best price

CONS

  • Expensive

  • Must keep house spotless for showings

  • Can still take a long time depending on the market

FSBO

PROS

  • Less likely to sell (only 15% of FSBOs sell)

  • No Realtor fees or commissions

CONS

  • Takes longer to sell (or may never sell)

  • More work for you (marketing, showing, qualifying buyers etc.) 

Cash Offer

PROS

  • Fast

  • Good way to take care of properties that need work

CONS

  • Must sell at a large discount

Lease Option

PROS

  • Sell at full price

  • Keep an asset that produces monthly cash flow

  • We screen and qualify tenants for you

CONS

  • Will not cash out immediately

 
 

What is Rent-to-Own??

What is Rent-to-Own and why would I consider selling my house using this method? If you are wondering the same thing, you have come to the right place! We are going to break it down for you into simple terms, hopefully answer any questions you have, and help you to determine if this method of selling makes the most sense for you at this time.

Rent-to-Own is a method of selling your house wherein you rent your home to a Tenant-Buyer for a period of time before they complete the final purchase. This method allows you to have your mortgage payments taken care of by the rent payments and often gives you some additional cash flow during the option period. The Tenant-Buyers consider themselves to be future owners of the property, so they take care of maintenance and tend to take much better care of your property than a typical renter would.

Below we answer some of your frequently asked questions about selling on a Rent-to-Own basis:

Frequently Asked Questions

Selling FAQs

What sort of down payments do most people have?


We try to get at least 1%-3% as a lease option fee - more if we can. This is where we make our money so our goal is to get a much as possible. Also, the more we get as a down payment, the more stable the tenant is for you, so it benefits us both.




What is the number of people who walk away from the house when the lease is over (either because they are unable to get regular financing or decide they no longer want the home.)


Less than 30% of lease option buyers will exercise the option. So it is likely that they will not buy it at the end. But there are some real benefits -

  • It doesn't cost you a dime to fill the property. That is what we do and we are paid by the buyer.
  • You no longer have to lose your mortgage or property tax payment every month since you will offset it with the monthly income.
  • You don't have to do maintenance on the property - the new buyer/tenant is responsible for repairs.
  • You don't pay for utilities.
  • They cut their own grass and shovel their own snow.
  • They don't call you like regular tenants.
  • You get a 3 years lease rather than 1 year for most renters.
  • You get a more stable tenant than a regular renter because the folks that move in see themselves as owners rather than renters. Remember the old adage, "You don't wash a rental car." Same goes for buyers vs. tenants of houses.




If the person walks away from the lease what becomes of their down payment?


It is non-refundable to the buyer. When they end their lease, we would be happy to help you fill the property again - we have a very active and growing list of buyers.




Who is responsible for upkeep and maintenance on the home?


This is all the responsibility of the buyers.




Since the home has a mortgage, are there any problems with leasing that would cause the "Due on sale" clause of the mortgage to be invoked by the lender?


No, a lender would see this as a lease, not a transfer of ownership.




Because it's a lease, does the person leasing the home get the homestead exemption or would it be treated like a rental property, and if so, at what point would the taxes would go up without that exemption.


It would be treated like a rental property so eventually the exemptions would be removed and the taxes would go up. But - you also get the benefits of owning rental property. I know that some people think owning rental property is nuts, but I own a lot of rental property and I know how easy it is to handle if you set it up right. You will get several financial benefits from keeping your property and selling it as a lease option:

  • Depreciation on the property. This is a good thing. You can deduct 3.64% of the tax basis (27.5 years depreciation) of the improvement of the property against either active or passive income (depending on how you are set up). On a $100k property, this would equal about $1k in real cash savings on your taxes each year. (talk to your CPA for details about how this works).
  • Appreciation of the property. Over time, the value of the property goes up. I know it's been a rough patch in the market these last few years, but the likelihood is that the values will eventually go back up. This will make it possible for you to sell the property in the future and make a profit rather than have the potential (in many cases) of actually having to come to closing with cash to sell it.
  • Buy down of the mortgage over time. Over time, the note will pay itself off. You may have years before this happens, but every month a little bit of your payment goes toward the principle and you will build equity.
  • Rents go up over time as a hedge against inflation. The thing I love best about my investment property is that the rents go up. I know of no other investment that has an automatic hedge against inflation like this. Most houses have 30 year fixed payments, but as rents go up, if you apply the extra income to the mortgage each month, you will likely pay it off in 10-15 years because of the increased cash flow.
There are also some negatives to consider:
  • Risk of vacancy. Over time, you will have vacancies. Each month the property is vacant, you lose money. The beauty of working with us is that we have buyers and can fill it very quickly. The risk of selling it on the open market is often much higher than selling it through us with a Lease Option. Keeping it on the open market, you must pay the mortgage, utilities, taxes, insurance, grass cutting, maintenance and wear and tear that comes from keeping a property vacant (did you know that the plumbing will often deteriorate in a vacant house because of lack of use?).
  • Risk of damage from tenants. There is always going to be wear and tear on a house when someone lives in it. When they move out, you will need to have it cleaned up before you sell it again. It's also possible that someone will deliberately 'trash' your house. This is very rare especially in this type of transaction and is covered by insurance.
  • Management headaches. I hate managing property and make a point NEVER to talk to any of my tenants. I have a competent property manager do this for me. The biggest reason people say they hate real estate investing is because they manage their own property. This, in my opinion just doesn't make sense. Let someone else do it for you - they typically charge about 10% of the rent. I can recommend someone good if you like.
  • Picking a bad buyer/tenant. This is another mistake most newbie investors make - they screw up on tenant selection. That is why we put them through a qualification process that vastly improves the tenant/buyer's success rate.
The downside of taking on tenant buyers, in my opinion, is much smaller than the upside - especially if the alternative is a vacant house. We know that in a good market, 33% of all properties listed for sale on the MLS do NOT sell. Right now, that percentage is much higher. We also know they will not sell for more than market value and that the cost to sell with a Realtor will run you about 10% after commissions, closing costs, repairs, and negotiation. For many people who are close to market value on their mortgage, this cost just isn't possible.





 

Need more details? Contact us

We are here to assist. Contact us by phone, email or via our Social Media channels.