Lease with Option to Buy.. as a Landlord, Questions..

I’m in California…

I have a rental property, I still owe $69k on it. I’m thinking about lease-with-option-to-buy and am new to this idea.

Do I set an interest rate?

Do I credit a percentage or all of the rent towards the purchase price?

Can I set up a sales contract with a new renter/buyer even though I still owe $69k?

Any answers on this from people who’ve done it would be greatly appreciated! :smile

One other, important, question…

Suppose I set the lease-option for 3 years… they lease for 18 months and then decide to NOT purchase and vacate the property. Am I legally obligated to give them back any money that was going towards the purchase price or is that considered their cost of maintaining the set price in the contract?

In short, refundable, non-refundable… or whatever I put in the contract?

You do not set the interest rate unless you eventually offer owner financing. You are selling the tennant an option that allows them to control the property and lock in a future sale price. You should require an upfront fee for this option. As for rent credit toward purchase that is entirely up to you and what is prevailant in your local market. Again, you are leasing the property and selling the tennant an option to purchase. You are not actually selling the property until the tennant exercises their option at which time you will draw up a sales contract. If at that time you would like to offer owner financing you can finance the entire purchase setting the terms and interest rate for your tennant/borrower and then continue to make payments on your existing $69k mortgage. However, transferring title to your tennant could trigger the due on sale clause in your mortgage. In lieu of 100% owner financing you could offer to carry back a second mortgage and let your tennant/borrower obtain primary financing to payoff your current mortgage. You can make the initial option fee nonrefundable as it is a fee in exchange for the option. The monthly credit towards purchase is likely refundable, check your local laws.