This is an email I received from one of my Sellers today along with my response.

Hi Bryant, 

I heard back from xxxxx and this is what she said to me: 

"Hi, We are very interested in the property but we can only give a month rent and some type of a deposit. I know that rent to own requires a larger down payment but maybe we can work something out we are responsible and have two children having a home would be a very important step for us. We can take over mortgage payments with you as the loan holder and of course everything would be in writing and the house would be registered under us through the county. in order for me to move out of my apartment without having to pay 2 months worth of rent I would need to supply them with a HUD 1 form that they typically give at a closing either that or I would have to wait till June which is when my lease is up. I am new to all this. I've never owned a home but currently do not qualify for a loan and don't have a lot of money. 

Let me know if this is something that you would be willing to work out." 

Hi My Seller, 

It sounds to me like she would be a better candidate for a straight rental than a lease purchase. And certainly she couldn't put the property in her name or assume your mortgage. Your mortgage has a "due on sale" clause that would prohibit this. 

Let me see if I can explain these things to you with out writing a novel :)  

A lease option is when you agree a sales price now and the tenant has the option of purchasing your home, at that price, at a future date. In the meantime they are tenants. An option has to have a non-refundable deposit(option money) to be binding. For example, Cheryl wants to buy your house and you agree to give her an option to do so at $150,000. In the meantime she agrees to rent the house. She would put a $5,000 option deposit and would be a tenant. Anytime during the option period(say two years) she has the "option" to buy your house at the agreed upon price. She could also sell it and pay you your money. If she decides to not take her option to buy the house she forfeits the deposit. If she buys it the option money is applied towards the purchase price. If she doesn't pay the rent she can be evicted and will loose her option money.  

Rent to own is a different animal all together. Let's say you agree to sell her the house at $150,000. She would give you a down payment and the balance would be paid just as if she was getting a mortgage. Usually the mortgage would have a balloon payment(final payment) due in 2 to 3 years. This means she would have that amount of time to refinance and give you your money or she could sell the property and give you your money. From the day she takes possession she has ownership rights. Which means she would be responsible for maintenance, taxes, insurance and the mortgage payment based on how much you sell the house for. If she is ever more than 30 days late on the rent the agreement converts back to a rental and you can evict her. BUT sometimes they can fight this(because you took away ownership rights) which means you may have to foreclose instead of evict.  

The advantage to the buyer/tenant, in either one of these scenarios, is that they control all future appreciation. This is because you are agreeing on a price now for a future sale. If the value goes up they win. If it goes down they still win because they can walk away from the property.  

Personally, I would only do either of these if they were able to give me a substantial down payment i.e. $5,000 or more. The money up front is really the only advantage over just doing a straight rental. Does this make sense? 

XXXXX seems to be coming across a little more knowledgeable than she is letting on. Talking about HUD statements and registering the house with the county is not something just anyone would know about. For me that's a red flag. Based on her response to you she is suggesting taking over ownership of your property without having to give you more than $2,000 or so. That's not something you can do because it would place you in the position of having to foreclose if something went wrong and that could cost you a lot of money. That's a risk not worth taking unless she has a good chunk of change to put up as incentive for her to make the payments on time and take care of the property. 

If she has no money and no credit then she MAY be a tenant but certainly nothing more. 

Do you know if she is in the area? Does she know where village 7 Poinciana is located? Maybe the first step would be to show her the house. THE END

 FOLKS, BE CAREFUL OUT THERE!!!

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