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Question
tenant wants lease with option to buy however no down payment money. Advice?
Tenant wants lease with option however no down payment money? Should I still allow this as a landlord? Where to draw up the contract?
Thanks,
Thomas
Best Answer
Thomas- Great for the tennant as it will have a restriction on your property, what if they recorded it and somone else in the future made you a great offer.
This is one of those where you may want to talk to a real estate attorney to advise or to draft an agreement.
It might be a different story if they were giving you option funds, but since they have no $ this should be a "Red Flag"
Other Answers
how about charging a little extra in rent for a year or so to put aside for the tenants to use as a down payment on the house? A lot of renters don't have money up front for down payments because rent is just so high now a days that it is extremly difficult to save a high amount of money in a short amount of time
by yes, Me too - 5 years agoYou're a fool if you don't get at least a month's rent and 1/2 for a deposit.
If you let them in for no money down, then they don't pay their rent - they can live up to 90 days free on your dime while you try to evict
No, don't do it.
Are you so hard up to get a tenant that you would make a deal like this?
Make the lease. Put in the option to buy and what would be needed in the purchase of the property. (Cost of property, down payment, interest rate, length of loan etc. It would be best to see a real estate lawyer to draw this up.
Of course if the tenant was to come up with the purchase price at the closing they wouldn't need a down payment.
Ultimately it's your place so you should lay down the rules as far as the money goes. However, it is harder these days for people to cough up money because of rents being so ridiculously high. It's a tough situation all around, so refer to my first bit of advice and stick to your guns. Someone will eventually cough up the cash.
by Stu H - 5 years agoI can appreciate that you obviously would like to help out this tenant. Under NO circumstances should you agree to option your property for NO option money up front.
The advantage to holding a lease option is price. You can set the price. If your tenant agrees to the price, they put up their option money which is non-refundable at the end of the term if they do not perform. You can also charge them rent over market and offer to credit back a portion of the rent with the incentive that the rent must be received on or before due date for the credit to occur. Otherwise there would be a late charge imposed.
The larger the option money, the more likely your tenant will be to exercise that option. The greater the credit, the more likely they will be to pay you early for the rents due.
It can be a win-win situation. But you need to set forth all the terms in writing for it to be a legal contract. All parties to the contract must sign. Put your option money into a separate interest bearing account that you do not comingle with any other funds. You may put the "excess" rental funds into this account as well. That way there is no argument about money. That money is not yours to spend until such time as the option has expired completely.
To protect yourself, you would also collect a security deposit from the tenant, as well as the first month's rent. The security deposit should be held separately in an interest-bearing account.
Lease-options have always make my investors money. For one, the tenant takes good care of the home because they consider it "their's". Secondly most lease options do not actually perform so you've make extra rent money plus you keep the option money and most of the time, you have a good tenant as well. You may want to return some of the "extra" money to your tenant at move out provided the home is in excellent condition which ensures they don't trash the home on the way out.
I hope this helps you make a good decision, Thomas.
Source(s)
CA Licensed Realtor - Sales Manager - Top Producing Agent
by carmensellsthehighdesert - 5 years ago
