Rental Agreement | Mr Boosh

It’s a Rent-To-Own – Not a Lease-Option

I am currently advertising one of my properties as a rent-to-own. I am trying to find someone who wants to buy the property but needs a flexible seller who will allow them to rent for a short time while they qualify for a traditional loan. I have discovered that there is a misconception that rent-to-own and lease-option are the same and that these are interchangeable terms. I disagree.

Call it semantics, but I think there is a difference even though they are similar and sometimes identical in structure.

The typical lease-option or rent-to-own involves a lease or rental agreement and an option or a purchase agreement. Aren’t those basically the same? Yes, they are, but the difference, for me, is how I explain it to the tenant-buyer or lease-optionee.

If I were explaining a lease-option to the lease-optionee, I would tell them that that they are leasing the property. Any time during the option period, if they want to buy the house, they can exercise their option and purchase it for the price described in the option. Pretty good deal for them right? They can rent and, at their option, they can buy the house whenever they like.

Now, here is how I explain my rent-to-own program. If you were my tenant buyer, I would tell you that you are agreeing to purchase the property from me and we would have a purchase agreement to do that. I realize you may need some time to get your loan in place and I am willing to be flexible with you and allow you to rent while working out the details of your financing.

Can you see the subtle, yet very big difference?

In the lease-option, they are leasing the property and if they feel like it, they can buy the property by exercising their option to buy. In my rent-to-own, they are agreeing to buy up front and they get the privilege of renting while they are getting their loan in place.

Usually, as a salesperson, I am reluctant to correct a buyer (think “agree and redirect”), but I am very quick to correct my tenant-buyers when they try to say they have an option to buy. No, no, no… you need to like it now and commit to me that you are going to buy. Then, I will be flexible and let you rent-to-own the property provided that you qualify.

These are subtle differences, but they can really change the mentality of those in your property.

Admin December 25, 2011 Real Estate Interchangeable Terms, Leasing, Option Agreement, Rent, Rental Agreement

Mastering the Art of Lease or Rental Agreement

Before mastering the art of lease or rental agreement, one has to understand the basics of it. A lease or a rental agreement refers to an agreement that a tenant and landlord sign authorizing the tenant to use the said property and to keep in the possession up to a certain period. Same kind of agreement made between the tenant and the subtenant is known as sublease.

Oral Agreement Can Lead to Many Problems Later:

Although it is possible to have oral agreement for the period of less than one year and written agreement are required for longer period, yet if you are interested in mastering the art of lease or rental agreement, you must learn having only written agreements. Any misunderstanding in an oral agreement may create severe problems leading to the dispute between the landlord and tenant. After the end of agreed period tenant need to give back the possession and rights of using to the landlord. However, a definite amount of money is specifically mentioned in the agreement that a tenant pays to the landlord. This amount is popularly known as rent.

Difference between Lease and Rental Agreement:

Though the rental agreement and lease used interchangeably, there are few differences between the two. The basic difference is in the duration for which agreement is made. Rental agreements are usually of very short duration that is 30 days. On the other hand, the term of lease is normally from six to twelve months. Another difference is related to the renewal of agreement. Renewal takes place automatically in case of rental agreement while in lease it does not happen.

Include Names of All the Tenants in Agreement:

Mastering the art of lease or rental agreement is very important not only because it is a legal document. In addition, it has all the practical details of the transactions that are going to take place between the landlord and tenant. The most important point to remember making a rental agreement or lease that include the names of every single adult tenant who is going to live in the property for the said period. In this way, you will make every tenant responsible for the payments and all other terms.

Mastering the art of lease or rental agreement also require that you mention names of all the people who are going to live in the property. This way, you can prevent the tenant from moving in any other relative or friend in the property. Neither it will be possible for him to sublet it. The amount of rent, time of payment and mode of payment must be specifically mentioned in the terms of agreement.

Admin November 7, 2011 Real Estate Few Differences, Landlord Tenant, Names, Rental Agreement, Singl

Landlord Tips – How to Raise the Rent on Your Rental Agreement

Landlords have to raise the rents on their rental properties sometimes, as their costs (mortgage rates, insurance premiums, property taxes, etc.) go up, and as market rents rise. It can be a tricky and unpleasant conversation to have with your tenants, so here are a few ideas to help make the conversation smoother and more successful.

Tip 1: Timing is Everything

Don’t raise the rent in winter or fall! It’s drastically harder to fill rental properties in the winter, so wait until spring when you’ll be able to find a new tenant to sign a rental agreement much faster.

Tip 2: Advance Notice: More is More!

First of all, most states require you to give tenants written notice 30-90 days in advance of raising rent, which is something you need to research in your state. Additionally, however, having the conversation sooner rather than later gives you a chance to find a new tenant BEFORE the old tenant moves, creating a smooth transition with no costly vacancies.

Tip 3: Do It in Person

There are a thousand good reasons why you should have the conversation about rent increases in person, but the bottom line is that the tenant will be far likelier to agree to it if you put on your big kid pants and show up in person. People feel less comfortable saying no in person, and you will find that you make a far more charismatic and persuasive case if the tenant can see your face, watch your hand gestures, and see that you’re a person with your own bills and expenses on the rental property.

Tip 4: Offer Tenants the “Assurance” of a Longer Rental Agreement

If the tenants hesitate when you tell them you have to raise their rent (and of course they will), this is actually a golden opportunity. Tell them that you understand that they have their own bills and their own concerns, and that you’re willing to extend their rental agreement from 12 months to 18 or 24 months, so that they can have a written assurance that you will not raise their rent again for a year and a half or two years. Sign a new rental agreement with them, with the new amount and the extended term, and you just secured a rented property for the next two years!

Tip 5: Research Market Rents Carefully and Beat the Competition… Barely

Moving is expensive, and tenants would have to start all over with a new rental agreement and new landlord. If your rent is less than local market rents, try raising it to just under the local average, so that it doesn’t make fiscal sense for your tenant to move. For example, if you currently charge $875, and area rents for comparable rental homes is $1,000, raise the rent to $975, and when your tenants balk, tell them that they’re welcome to check out the house across the street available for $1,000, or the house a few blocks over available for $1,250, or the one up the street that’s also $975, and explain that their rent is still below area market rents.

Tip 6: Consider Alternatives to Raising the Rent

It’s possible that raising the rent is not worth the trouble, if it means losing a particularly good tenant. If you have a great tenant, consider approaching them (in person, of course!) and talking over a few possibilities. First of all, explain why you might need to raise the rent (higher taxes, etc), which most reasonable people understand. Second, gauge their reaction to the proposed rent increase. Third, if they look panicked, tell them that they’ve been great tenants, so you’re willing to cut them some slack. Consider offering them a new rental agreement that phases in a rent increase over the next 12, 18, or 24 months. So, maybe the rent will stay the same for the first six months, then raise by $25 for the six months after that, and another $25 the six months after that. Make sure they know that you’re working with them, and trying to keep the rent affordable, because they’ve been such great tenants.

Raising the rent on your rental agreement isn’t the fun part of being a landlord, but it is a necessary part if you intend to actually make any money. Consider each rent increase on a case by case basis, be fair, be honest, and remember that securing another, longer-term rental agreement may be more valuable than an extra $15/month.

Admin October 24, 2011 Real Estate Bottom Line, Rent Increases, Rental Agreement, Rental Properties, Rental Property