We have renters that have lived at a house in Cary for 2 years and they are interested in staying on a more permanent basis.

I have googled a bit and their seems to be a broad range of positives and negatives. Do any of you have experience on either side?

We are only tossing lightly because the length of contract that they are wanting to sign is ~3-4 years and I am hesitant to commit to a purchase price 4 years from now.

The property is a 3 bedroom 2 bath single family house in central Cary.
It is 1280 sf was purchased 4 years ago at 129k
It has appreciated to about 165k
(new roof, water heater, dishwasher, and next month new retaining walls)

Also if you have gone through this experience, what were the generic terms of the contract in terms of home improvements, repairs, ets.?

Who drew up your contract?

I am actually thinking this is a bad deal for us, but am keeping an open mind,

1/3/2010 2:15:23 PM

You are taking all the risk. They could leave at anytime. Of course if they paid and then had to break the contract, then you still have your money (if they paid on time), but getting people evicted is a pain.

1/3/2010 2:33:58 PM

The way rent to buy properties work around here (Seattle) is that a percentage (usually 50%) of the monthly rent is "banked" as an option for the renter to use to purchase the house at any time.

There is no longer term lease, and there is no static market value for the house. If the renter decides not to buy the house, you return an agreed portion of the banked equity to the renter when they terminate the lease.

Usually the "rent to own" properties carry at 20-25% rent surcharge for the option. So the renter pays 20-25% more rent, and you essentially offer to apply a portion of the normal rent to buying the house when/if they decide to.

In the end you make money either way, and if they back out, they get the 25% surcharges back.

1/3/2010 3:56:50 PM

I have a few rental homes, and the topic has come up a few times.

As I understand it, you agree to a price to sell the home in a certain period of time. They pay you rent, plus an additional portion that should be applied towards closing costs when they buy the house. The catch for them is that they do NOT get back all the money they have paid if they walk away. It is a way for you to charge more for rent. Its supposed to be a way to help people that are not good at saving money to force to have money put away to eventually be a home owner. From people I know that do this, what it really means is that the landlord walks away with more rent, and keeps the house in the end.

If they want a four year period, a LOT can happen to cause them to walk. And this will end up with you having more money in your pocket.

If you own the property completely, the better option would be to self finance the house to them. You will basically be the bank, and will enjoy the 5-6% interest rate while they are paying off the house.

There are lots of pitfalls with either option.

[Edited on January 3, 2010 at 4:10 PM. Reason : /]

1/3/2010 4:09:23 PM

^ Can they then write off the interest they pay to you?

What happens if they stop paying? Do you get to just evict them or do you need to foreclose?

1/3/2010 6:06:09 PM

I wouldn't be overly concerned with locking in a purchase price for the next 4 years as it doesn't seem the market is going to appreciate much in that time.

What you could do is to charge them the option for this contract and apply some inflation or increase in home prices in your neighborhood allowances into the contract.

Other than that, how is it a bad deal, you were going to continue renting the property any way we're you not?

1/3/2010 6:09:18 PM

^ Cary is still appreciating......There is a house on that street for sale for over 200k. For some reason, people still want to move in...We are considering selling it when my husband gets his promotion. We will probably move and use it for the next home in the new area. It is still considered his primary residence (3 years out of the last 5) so we wouldn't have to pay capital gains tax and we would qualify for the $6500 tax credit. We would then rent out the house where we live now.

We still owe ~ 80k on the house and I am not sure we would want the risk of self financing.

Does anyone have a real estate lawyer they have been happy with? I am willing to at least give this a fair shake.

[Edited on January 3, 2010 at 6:30 PM. Reason : ]

1/3/2010 6:27:58 PM