What is the typical range for down payments made by most people?

• We aim to secure lease option fees between $2,000 and $3,000, and if possible, even more. This is where our profit lies, so our goal is to maximize the amount received. Furthermore, a higher down payment contributes to a more stable tenancy for you, benefiting both parties involved.

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What percentage of people walk away from the house when the lease is over, either due to inability to obtain regular financing or a change in their decision?

• Less than 30% of lease option buyers ultimately exercise their option to purchase the property. Therefore, it's likely that they won't buy it at the end. However, there are several advantages to consider:

  • ​You won't incur any expenses to fill the property since that's our responsibility, and we are compensated by the buyer.

  • You no longer have to cover the monthly mortgage or property tax payments, as the income from the lease offsets these expenses.

  • The maintenance and repairs on the property become the responsibility of the new buyer/tenant.

  • You don't have to bear the costs of utilities.

  • The new buyer/tenant handles tasks like lawn maintenance and snow shoveling.

  • Unlike regular tenants, they won't bother you with constant calls for minor issues.

  • You'll have a longer lease term of 3 years compared to the typical 1-year lease for most renters.

  • Lease option buyers tend to be more stable tenants since they view themselves as owners rather than renters. This mindset fosters better care for the property.

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What happens to the down payment if the person decides to walk away from the lease?

• The down payment is non-refundable to the buyer. If they end their lease, we would be more than happy to assist you in filling the property again, as we maintain an active and growing list of buyers.

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Who is responsible for the upkeep and maintenance of the home?

• All maintenance and upkeep responsibilities lie with the buyers.

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Since the home has a mortgage, will leasing it cause any issues with the lender invoking the "Due on sale" clause?

• No, lenders perceive this arrangement as a lease rather than a transfer of ownership.

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Regarding the homestead exemption, does the person leasing the home receive it, or is it treated as a rental property?

• If treated as a rental property, when would the taxes increase without that exemption? The property would be treated as a rental property, resulting in the eventual removal of exemptions and a subsequent increase in taxes. However, it's important to note that owning rental property also offers financial benefits. Rental property ownership provides the following advantages:

  • ​Depreciation: You can deduct 3.64% of the tax basis (27.5 years depreciation) of the property's improvement against either active or passive income. This translates to real cash savings on your taxes, approximately $1,000 per year for a $100,000 property. It's advisable to consult your CPA for detailed information on how this works.

  • Appreciation: Over time, property values tend to increase, allowing you to sell the property in the future at a profit rather than potentially needing to contribute cash to close the sale.

  • Mortgage Payoff: The mortgage gradually decreases over time as you make monthly payments, building equity in the property.

  • Rental Income: Rents typically increase over time, acting as a hedge against inflation. By applying the additional income to the mortgage, you can potentially pay it off in 10-15 years due to increased cash flow.

• However, there are also some negatives to consider:

  • ​Vacancy Risk: Vacant periods result in financial losses, as you continue to pay for mortgage, utilities, taxes, insurance, and maintenance expenses. Working with us significantly reduces the risk of vacancies, as we have a pool of buyers and can quickly fill the property.

  • Tenant Damage: Wear and tear on the house is inevitable when someone lives in it. Upon their departure, you'll need to clean and prepare the property for the next sale. Although rare, deliberate damage is covered by insurance.

  • Management Challenges: Property management can be a hassle, which is why it's advisable to hire a competent property manager who typically charges around 10% of the rent. If needed, we can recommend a reliable professional.

  • Selecting Suitable Buyers/Tenants: Choosing the right tenant/buyer is crucial. Our qualification process significantly improves the success rate of the tenant/buyer.

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• Considering the potential upside and downside, the risks associated with tenant buyers are outweighed by the benefits, especially when compared to having a vacant property. Currently, a significant percentage of properties listed on the MLS fail to sell. Moreover, selling through traditional methods often results in a sale price not exceeding market value, and the associated costs, including commissions, closing expenses, repairs, and negotiations, can amount to around 10% of the sale price. This might be unaffordable for many homeowners who are close to market value on their mortgage.

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When it's time for the buyer to exercise their option, how do they obtain financing?

• Buyers seeking to exercise their option apply for a loan with any conventional lender. The reason they opt for a "Rent to Buy" arrangement is that they don't currently qualify for a conventional loan. Obtaining loans has become more challenging since 2007, as conventional lenders now require near-perfect credit. Additionally, appraisals can present issues, as an unfavorable appraisal may hinder financing even if the buyer qualifies.

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Our aim is to assist responsible individuals in acquiring a home—a home they will care for and treat as their own.

 

Over the years, we have had success in finding such buyers. If the buyer exercises the option, it's fantastic as it ensures your profit. If they don't, the advantages of having someone pay your mortgage and work toward buying the house for you are significant.

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I hope these answers provide you with a better understanding of how the process works and help you determine if it aligns with your goals.