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by Charles W.
Moore
Real
estate investors who work with
rent-to-own properties and lease purchase
options are likely to run into snags here and
there because, like any investment, there is
inherent risk. Minimizing these risks is
essential to success.
Rent-to-own property investments and lease
purchase options have inherent risk
factors that cannot be removed. These, as with
risk factors involved in any type of investment
scenario, are just the nature of the beast.
However, in order for a real estate investor to
be able to profit from such a venture, these
risk factors must be acknowledged and addressed
to minimize potential loss. What are the general
risk factors in rent-to-own and lease purchase
options?
Consider that the tenant-buyers with whom you
will be working are those with whom standard
mortgage companies and banks are unwilling to
work. This is usually due to insufficient
credit, lack of steady work, high debt to income
ratio, and other factors that are considered
high-risk for a mortgage loan. This means that
you are automatically signing up to accept a
form of credit – through a contract – with
someone that is not able to receive formal
credit approval elsewhere. This is one of the
risk factors that must be taken into
consideration.
There is a chance that your tenant-buyer
will not continue payments as agreed in
the lease purchase contract. You may find
that, at the end of the contract, your
tenant has decided not to purchase the
property, at which point you again have a
property on your hands to sell. Perhaps it
turns out that, once the tenant-buyer is in
the home, he or she leaves it in a state of
disrepair that is unacceptable and refuses
to pay to repair it. That means you now have
a property that is not only in your hands
awaiting a new tenant but also must be
repaired before being rented out again.
In order to minimize these risks, you need
to have all aspects covered in the initial
contract. Be sure you make it clear that the
tenant-buyer is responsible for regular
maintenance of the property and that it is
to kept in acceptable condition. Cover the
monthly payments in terms of amount, terms
of the lease (how long payments must be
maintained), and consequences of nonpayment.
Have a lawyer attend to the documentation so
that everything is legally binding, and make
sure all parties have signed and dated
copies of the agreement. Make sure you have
a copy filed with the county as well so that
the entire agreement is on record and there
are no disputes as to what the original
agreement was. This will also cover you in
the event that the tenant-buyer wants to
reduce the offer on the amount for which the
house was to be purchased.
Be prepared to take over your leased
property if the tenant-buyer decides not to
make the purchase so that you are not
surprised or negatively affected if they
simply move out. It may be their choice, or
they may still have insufficient credit to
qualify for the mortgage loan they need.
Make sure you have the means of
advertisement to get the real estate
property back out on the market quickly so
you can find another tenant; there are
always those who are looking for this kind
of alternative buying method.
Most of all, keep track of the paperwork and
make everything legally binding. You cannot
remove the risk factors from rent-to-own
housing options, but you can reduce the
amount of risk by taking the necessary
precautions.
ABOUT THE AUTHOR:
Charles
W. Moore is a U.S. Army Veteran who began
investing in Real Estate in 2001. He's a
Full-Time Investor, Webmaster, Speaker, and
Author of the book, "Million Dollar Rent To
Own Real Estate Secrets Exposed." Get a Free
Report on
Rent To Own Real Estate Investing from
Charles at:
http://www.Rent2OwnExposed.com and learn
more about Real Estate Investing, Investing
in Stocks and Internet Marketing by
visiting:
http://www.REIeBooks.com
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