Rent Credit

Hello, I just starting to build my business as a real estate investor and I have this ebook which I have been studying before I go into the field. However, there are a few things that I do not understand and can’t get my mind around a few concepts. But I will start with the first issue. I am having problems trying to understand what is rent credit and how does this apply to me, the seller, and the buyer. I am confused when I was reading about the rent credit section in the ebook. Can anyone please help me to understand what it really means and put it in a situation it occurred before so I can have a better understanding? Thanks!!

Rent credit is simply crediting a portion of the rent paid per month to the renter in the event they purchase the house. For example, if they pay 1000 a month in rent and you write into the lease/purchase agreement that 200 a month will be rent credit then when they purchase the house you take the number of rent checks they’ve paid you and multiply that by the 200 per check to see what credit you’ll be issuing at closing.

It’s essentially earnest money lay away :slight_smile:

Bear in mind that most lenders will only allow you to credit the difference between what an appriaser states is Fair Market Rent for your property and the what they are currently paying. So if they pay $1000 a month in rent, of which $200 a month is supposed to be a rent credit but the appraiser states that $900 is fair market rent then you can only credit the $100 difference above fair market that they pay. (otherwise the underwriter will consider this as an inducement to purchase).

Hope this helps.

Thanks! I had a hard time trying to understand what it means. Thanks for explain it to me! :slight_smile:

Good Afternoon Darhett,
The first response you received was right on. One more aspect of the rent credit to consider is using it to close the deal, both as the buyer and the seller.

As the buyer, I have agreed to pay a higher price for the house than I wanted too, as long as the seller allowed a monthly rent credit. This accomplishes two things, 1) I let the seller know this gives me more reason to stay in the deal because I am building this “non-refundable” monthly rent credit. 2) By the time to deal is to be finalized, the final sell price is back where it needs to be for me to make a profit.

As the seller, I use a monthly rent credit for two main reasons. 1) I charge a higher than normal rent for the property, getting some of my profits earlier. 2) It tends to keep the tenant buyer in the deal, because once again this is a “non-refundable” rent credit. If the tenant-buyer decides to walk away from the deal, I keep this amount.

Just my two-cents.

Go Get’em!
Ray - Indiana