If You Can't Buy My House, Rent to Own It
It’s a concept that’s coming into vogue. But is it right for you?
First, Decide If You Want to Be a Landlord
It’s easy to forget that part. After all, you are selling your home -- granted, a little slower than you initially expected. You might easily think that you’ll move out, people will move in and you won’t see them again until two years later at the closing. That could happen, but it probably won’t. If your renters want to refinish the basement, if the contract is what it should be, they need to get your permission first, and you have to grant permission. If there’s a leak in the roof or mold in the walls or some other structural damage, it’s ultimately your job to fix it, even if your contract states otherwise. Odds are something will come up over two years where you’ll engage in some landlord-type activity.
“Everyone getting into this has to understand that this is all subject to landlord-tenant laws,” says Vena Jones-Cox, a real estate broker and investor in Cincinnati who in the last 18 years has lease-optioned approximately 300 houses as the seller. “There are a whole bunch of laws out there, like lead disclosure. People will think, 'I don’t have to do that because it’s not a rental,' but it is -- all of those general laws referring to rental are applicable to you. Until the option is exercised, it is a rental.”
(That said, although the laws are slightly different, any home seller or landlord is required by federal law to disclose the presence of lead or other hazardous materials found in their home, if they know of its existence. After 1978, lead-based paint was outlawed for residential use.)
Vena offers another example. She says that in Ohio, where she lives, and in a lot of states, the water company will send the bill to the tenant of a house, but if the tenant doesn't or can't pay it, the homeowner is responsible. That can get expensive if the tenant owes four or five months of water bills, and it takes a while for the water company to tell you about it.
But that just underscores Vena's thinking on taking an evening class on property management -- and especially the importance of looking for a potential buyer who has a history of being a responsible citizen. These days, a low credit score doesn't automatically make someone a bad person or even a serious risk. On the other hand, you can't just give people the benefit of the doubt.