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Property a Good Candidate for Lease Option?

Property a Good Candidate for Lease Option? Tags: , , , , , , , , , , , , ,

Property a Good Candidate for  Lease Option?

Q: How does the Lease to own process work?

Answer: We will lease option your home for the asking price and pay you rent equal to your market rent and accept responsibility for all repairs after the first 30 days. We will then find and screen a tenant buyer who will make a financial commitment- non-refundable option deposit – to lease the home with the option to buy and assign our agreement to them after you approve them. We buy houses any price and in any conditions even pre foreclosures and over leveraged.


From the Tenant-Buyer side, the process works as follows:

  1. They submit a Rent-To-Own application.
  2. They view the property (we will schedule this accordingly).
  3. They submit all docs required to completely process their application.  We do all the screening (income verification, rental history, credit reports, criminal background, etc).
  4. We review all information on qualified applicants with you.
  5. You approve your desired applicant.
  6. They submit funds to escrow if they haven’t already (Option Down Payment/Option Fee plus first FULL month’s rent due prior to receiving keys).
  7. Contracts and ancillary documents (lead disclosures, etc.).
  8. You meet with approved applicant for property walk-thru, provide keys and they move in!
  9. Going forward, they pay monthly rent directly to you.

10. Tenant-Buyer exercises their option prior to the Option deadline.

Q: How do we decide on an option price?

Answer: We do a comparable sales analysis to determine the property’s current max value.  We’ll be sure to discuss with you any special features of your home in comparison to the surrounding homes nearby.  We will provide you our assessment of the highest value we think the property could appraise for in today’s market.  As you are aware, your tenant-buyer will be getting a home loan to purchase your property and the lender will require that the property appraise for at least the option price.

Q: What happens if the property does not appraise for the option price?

Answer: If it does not appraise, you have the following options:

  1. Lower the tenant-buyers’ option price to a lendable value; or
  2. Extend the tenant-buyers’ terms until the home does appraise for the option price;
  3. Any other amicable solution you and the tenant-buyer can come to.
  4. Tenant-Buyer moves out, you keep the non refundable option deposit.

Q: How do we decide on a monthly lease payment?

Answer: We usually recommend either the market rent or what we refer to as “mortgage rent”, whichever is higher.   “Mortgage rent” is the monthly amount estimated for a typical mortgage payment for the property at the option price including taxes and insurance.  In most circumstance, market rent is higher.

Q: If the Option Down Payment/Option Fee the tenant/buyer pays goes towards your compensation, how is the owner protected in event the tenant-buyer causes property damage?

Answer: The contracts make the tenant-buyer fully and financially responsible for all repairs and maintenance beyond normal wear & tear .  Keep in mind the option fee/option down payment is NOT refundable (unless you breach the contract).  We have never had a tenant-buyer who put down at least 3.5% of the option price from their own funds do anything (like damage a property) to jeopardize that investment.  A tenant-buyer is truly a different caliber of person than a typical renter.

Sometimes, typically due to unforeseen circumstances, there are tenant-buyers who do not exercise their option and hence vacate the property.  Most times they leave the house in excellent condition, and many have even completed improvements to the home leaving the owner with an improved property!   We do a thorough back ground, employment and rental history check for best efforts to place the best of the best tenant-buyers.


Q: How is the Option Down Payment transferred to the buyer at closing?

Answer: The tenant-buyer is required to put their option fee/option down payment in a third party escrow account.  Once all parties sign contracts the funds are RELEASED from escrow.  Please note that funds do not “sit” in escrow long-term.  When the tenant-buyer is ready to exercise their option later down the road, they will already have all the documentation needed to provide evidence of their option down payment to their lender or mortgage broker.  Sometimes loan underwriting may require a statement of account from the escrow company which is very easily obtained by the escrow company.  Lenders just need to see that the option down payment/option fee is “seasoned” (usually for at least 60 days) and “sourced” (came from the buyer).  Once the funds are confirmed, the amount the tenant-buyer put down for their option is simply reflected on the HUD closing statement as a line item usually as an earnest money deposit (EMD).  In other words, the actual funds do not have to be produced at the time of closing as it’s all accounted for accordingly on the closing statement.

Q: Is the option fee/down payment just applied to the contract price?

Answer: The option fee/option down payment is strictly and solely to be considered as a down payment on the property and is applied to the contract price at closing.

Q: What percentage of your tenant-buyers actually end up exercising their option?

Answer: On average approximately 80% of our tenant-buyers go on to exercise their option.  About 20% of those needed an extension beyond the initial term.  This is why we now start off the initial terms to be at 24 months rather than 12 months.

You may find that stats for other companies are far lower, so much lower that many times people find our stats hard to believe.  We’ve talked to quite a few similar companies and individuals out there over the years and find that, for the most part, owners sign contracts with the first person who has some decent cash to put down without giving careful consideration to the tenant-buyer’s ultimate goals, finances, credit, etc.  Either that or they attempt to convert a traditional renter into a tenant-buyer.  Essentially, in both cases, the screening and pre-qualifying is minimal at best.  We make it an explicit point NOT to do business this way for a number of reasons…most importantly, this is not in either the tenant-buyer’s nor the owner’s best interest!  We don’t consider it good business to depend on luck or happenstance for the sake of a speedy placement when there are so many smart and effective ways to increase the odds of ultimately accomplishing everyone’s goals.

Q: What are the benefits to the Rent-To-Own model?

Answer: Probably the biggest benefit to the owner is their NETTING considerably more in exchange for the flexibility they offer with rent-to-own.  We find that our owners NET at closing an average of 20% or  MORE than they would have selling the property through traditional methods.  With our tenant-buyers, there are no low-ball offers (up to 4+% average), there is no demand for “seller help” (up to 6%), they pay all closing costs (~2%), no out-of-pocket inspection repairs (1% average), and there are no commissions (up to 7%) to be paid when they buy.

And finally, the owner has a family living and caring for their property to a much higher standard than that of a typical renter.  A much better option especially if the owner was willing to rent the property out as a last resort anyway.


We hope the Answers to these Frequently Asked Questions helped give you confidence our Lease Option Program

Once again, if you decide you would like us to begin marketing to place a tenant-buyer into your property, please go to http://fchousebuyers.com or call us at 786 505 8884.  We look forward to working with you!

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