Rent-to-own property are leased with the option to purchase the property after a set amount of time. It's a choice option for buyers looking to "test drive" a home. It also comes as a viable alternative for buyers hoping to build their credit score in the meantime. Monthly rent is paid along with additional fees that add up to the principal payment. Once the term of the lease ends, the potential buyer can opt to purchase or walk away from the property.
If you have a property you're looking to market as a rent-to-own, look to the guidelines below to draw up a sound and fair contract between you and your tenant.
Identify the basics.
The contract must clearly state who owns and who is renting the property. Identify the property with its official and registered address.
Set the dates.
Agree upon a specific date including date, month, and year when the tenant moves into the property. Likewise, agree upon the term of the lease, and a specific date upon which the renter can own the property if he so chooses. Typically, the term of the lease among rent-to-owns is three years. But consider as well whether the term will be enough for the renter to build sufficient credit score to qualify for a mortgage. Longer terms may be negotiated for higher fees paid each month.
Compute the purchase price and deposit.
Enlist the help of a broker, real estate consultant, or other professional to come at a good purchase price for your property. Agree upon this price with your tenant. Then, compute how much your tenant will be paying you as part of the downpayment.
Compute the rent.
Agree upon the cost of the monthly rent and the day of the month when the rent must be paid. Indicate any penalties or sanctions for late payment or not paying rent. Provide a breakdown of the rent as well; the contract must state what percentage of the rent will be set aside for the downpayment.
Establish your ground rules.
The contract must state which party is responsible for maintaining the property during the term of the lease. Whilst the property is still for lease, the owner has the prerogative to establish rules or restrictions as to how the property may be used or altered.
Indicate conditions of termination.
Specify the conditions under which the lease agreement may be terminated, as well as any penalties or sanctions to both parties upon the termination.
Specify the date of signing.
Lastly, don't forget to include the date of signing. Enlist a witness or notarize the contract to protect both parties.