After “getting the deed” subject to the existing financing, how long of a rent2own contract should I put the tenant/buyer into? 12 month? 24 month? Do I need to wait longer than 12 months to avoid capital gains tax? Thanks.
Sonriffic
Short answer: It depends…
I think that you mean wait longer than 12 months to gain capital gains tax treatment.
Capital gains are taxed at a lower rate than ordinary income.
Some investors in my town use only a short term lease/option agreement to try to get the tenant/buyers to execise the option and cash them out as quickly as possible. One area of risk avoided by staying short is the risk that the property will appreciate in price beyond the option strike price, and thus giving the benefit to the tenant buyer.
Others like the longer term because they know most tenant/buyers won’t exercise the option, and they don’t like to deal with a vacancy and re-renting the property. (Vacancies and turnovers cost you money in this business.)
So it depends upon your particular circumstances and what you are trying to accomplish with this property. Do you have a big back-end gain in this deal that you want to get out as soon as possible, or do you have a good monthly cash-flow spread that you would like to have go on as long as you can make it last?
I tend to go with a three-year agreement with the rent increases built in from the beginning. You might be suprised to know that most of these still are not excercised at the end of three years, but almost everyone is renewed and extended for another three years. (Of course, the monthly rental amount and the option strike price is increased to reflect the increased costs of insurance, property taxes, property values, management fee increases, general inflation, etc.) I like the monthly passive cash-flow. I don’t need the big back-end at this point. Besides that, if it sells I gotta go out and get another one, mess with doing a Section 1031, fill it, and generally start the process over again. I’ve gotten much too lazy for that now. 
My average tenant/buyer stays seven years before either moving or exercising their option to purchase the property. This is fine with me. I wish they would stay forever, and keep paying me.
Valgolas
How can i find out about capital gains in my state? Is this a discussion i should have with my accountant?
Good points by the way. I do agree that keeping the tenant/buyer for a longer period of time makes it better for passive income
AD