Lease your own House

Hello everyone,
I’m looking into leasing ( rent to own) my own house. I live in CA and I’ve been transferred to another city. I would like to hold on to the property for one more year to increase my equity. Do you think that I should sale it, or lease it for one year?

Just my opinion - which means nothing…lol

Since you are in CA. which is a red hot market with prices escalating at 15-20% or higher per year, I would do the following:

I would cash out now and put my money to work in that area since you are familiar with it. I would try and get into as many properties with the cash out money as I could and still be able to operate (take care of problems).

Say for example your house is worth 250K and you could cash out with 100K. In 1 year @ 20% appreciation your house would increase in value by 50K. If you could get 5 properties at 200K each w/20K each to get in the properties for a total of 100K invested, at the same rate your value would increase from 1,000K to 1,200K or 400% better or 150K moren than your current house alone would do.

Of course you must understand that equity is usually worth less than Cash. I have put this in it’s most simplest terms as there are many variables that can effect the end outcome such as area, market, financing, terms, etc.

Again, just my opinion…which means nothing…LOL

Good Luck

Unless you need to sell, it’s better in my opinion to lease it out so you will get both positive cashflow(hopefully), and appreciation at the same time. If you need cash, just refi and take out $$.

I am in SO CA also. Where is you located?

I’m in the Sacramento area.
The houses in this area are selling for low $400k, $20k down won’t get me a low mortgage payment so I could generate a positive cash flow.
If a I lease it , do I have to lock the price of the house with today’s market value or can I set in the contract that if the option is exercised it would be discounted 3%, for example?


I always use the future appreciated price in my lease option sale prices. If you are having a 15% increase as was mentioned before, use this to increase the price. If you put someone in your house for three years, remember that the increase should be added to each years value. For example, today your house is worth 400k. Next year it would be 415k. Add 15% to 415K for the next and add another 15% to that total for your sale price. I always go with the lower number for the amount of appreciation. Just a safe bet. I also offer rent credit for paying on time. Both of these features help the buyer build equity. It really motivates them to take care of the place as well. :smiley:

Unless I am missing something in the discussion, adding 15% to a $400K house would give you $460K vis-a-vis $415K…the second year it would be worth $529K and the third year $608,350 (ya gotta love compounding!).


:-[Sorry about that. BOY was that dumb. :stuck_out_tongue: Thats what I get for trying to do math late at night. I do believe it looks like I was calculating on 100k instead of $400k. Sorry, that would be a course of habit. The median priced home in my area is 119k. I’m not used to playing with anything too much higher than that. Not that I would mind, though! Looks like a great opportunity.


Are you saying that I should add 15% to the current value in the O/L? How the new owner would make money if I adding in advance the future equity value?
please be pationed,I’m new on this.

thanks for your response!!

Yes, add it to the current price. In my area it is only 6 to 8%. So, I will use a little less to make it more attractive. Usually, I only use 5 to 7%. Hey, there is no need to be greedy. I live in a small town. I definately don’t need that kind of reputation. I also offer a rent credit every month. If the house is in a really good area and I can expect a very good appreciation, I will give as much as a 50% rent credit (if I have enough spread). This, of course, is not real money. I take the rent credit and apply it towards the agreed apon sale price in my contract with my buyer. My tenant buyer will only get a rent credit if they pay on time and continue to take care of the house. This will give the new buyer earned equity and hopefully insure on time payment. If they do not excercise their option, they will lose the earned equity.

Can you tell me if the buyers monthly payments go towards their equity? That is the same as rent credit right? For example, according to the amortization shedule, I lease my house for $275 for 3 years at 7%, their monthly payments would be $1800 a month. About $220 goes towards principal. At the end of 3 years, almost $9000 (of the monthly payments) will go towards their equity. So by the end of 3 years, they could refinance at $275K - 9K = $266K. Is that right? or am I missing something here.

I’m not sure if your question is directed to me, but I’ll put my 2 cents worth in anyway. As I mentioned before, I live in a small town. (about 30,000 people) I keep my contracts very simple. Most of the folks that I deal with prefer it that way. I decide ahead of time what I want to make on a house, both each month and at the end. I then structure the deal to fit. The last house I put under contract went like this. The bank payment was 444.00. I put my “rent to own” tenant in the house for $2,000 down(non-refundable) and $600 a month. Thats a little over $150 positive cash flow. I offered a 50% rent credit.(300 a month is stated on my contract) I had a total of 48,000 in the house. The appraisal at the time was 59,000. I set up a 2 year deal with my tenant buyer. I determined my appreciation and and added a couple thousand to justify the high rent credit. (I did this to move this house quickly) Total sale price is 68,000(stated on my contract) :P. If she chooses to excercise her option she could potentialy have 300 a month x 24 months =7200 towards the purchase price. 7200 + 2000 down = 9200 towards sale price. 68,000-9200= 58,800. I get 10,000 at closing plus ammortization of the loan, which will be 12,000 to 14,000. I’m not sure right off. Not to mention 150 cash flow for 24 months =3600. total profit is 12,000 + 3600 = 15, 600. Yes, I know that I could have made more, but why be greedy. I was happy with this deal because my 48000 was after a 4 mth rehab, and did I mention that there was a 30,000 house on the lot next door that came with it. I currently rent it for 300 a month, all positive cash flow. Does all this make sence? I hope I didn’t confuse anybody. I am by no means an expert, but I hope this helps. :stuck_out_tongue:

Hi everyone, great thread here!

If I understand the way this is being set up, the tenant buyer will have an equitable interest in the property, am I correct?

If that’s the case, I would recommend you are very certain of the person you put in the home. If, during the term of the contract, s/he decides they no longer want the house, you may find yourself returning all the profits you’ve made on the property.

Hey StJake316,

No you are getting that wrong.
I’m going to use Thobs example;

Say this tenant on this house decides not to take the option at the end of her lease. The money that she put up for the option not returned to her. NON refundable. Unless Thob had it in his contract that the credit would be refundable. Which in most cases probably not. The rent credit is like a “THAT A BOY” for making your payments on time and taking care of the house. The only thing that you would want to return would be the security deposit. Some REI’s take deposits and some don’t. I do. Gotta protect myself and if they vacate you have a months payment to find someone else.
if the T/B chooses not to take the option after the lease. Than you would advertise again and get someone else in there at the same terms. 2000 down, etc. making even more money out of the 68k you had tied up on your last T/B… Make Sence???

Hope so… Good luck, and hope this helped!!!



Got it. The option consideration is non-refundable, and so is the rent credit if the t/b decides to not exercise the option. I misread.

Glad the mistake was on a message board instead of on a contract!

Thanx for pointing it out.

I have two more questions for you guys javascript:replaceText(’ ;D’)
Do I need to create a LLC with a land of trust to make this deal or can I do it just using my name?. Also, I have the Option Agreement and the residential lease forms, do I need anything else?

Thanks all for your responses; it has been an amazing learning experience.


Lease and buy. I don’t care if you have a negitive cash flow form the Cali home. The apprecation is outstanding. Don’t sell it. Pull a HELOC out of it and buy where you are moving. Repete the process 10 times. Buy a preconstuction condo on the beach in Mexico and retire comfortably.

Hi! Glad to meet you.

This looks like an average LT investment the way you’re presenting it. You’re the first investor I’ve ever heard shrug off a NCF, though. If I were in this situation, I’m not sure I’d go with a HELOC, that would just put me deeper in debt to a lender, and I’m already losing money on the deal.

This advise sounds more like what I’d hear from a real-estate agent or tax advisor than from a REI. I don’t know about everyone else on here, but I don’t have the money to be throwing at a pie-in-the-sky LT appreciation.

Also, I don’t know about Las Vegas, but in Indiana you can only take out so much in home loans before you hit the ceiling and they stop lending - even if you have PCF from ALL the properties you own.

Not trying to be argumentative, just looking for clarification.