Rent-to-own pricing

How much more do you charge per month for a rent-to-own situation vs just regular rent? I understand you have to charge more so you can give them a credit each month and still pay all the bills/cash flow but how much more is too much? Obviously you need to remain reasonable for the area’s market rents, but I’m not sure if the rent should be $100 more per month, $150 more per month, or just keep it the same and give up some cash flow in return for selling the property at the end of the lease term? Any advice would be appreciated. Thanks!

I charge $100 more per month in rent which I will end up giving back IF they make each and every payment ON TIME and they end up exercising their option which is unlikely but possible. I also charge no less than $5,000 option consideration fee that I will also give back to them and attribute to the purchase price IF they exercise the option. Otherwise they don’t get it.

I say 5K because that is what it costs me for my lawyer to fight an equitable interest lawsuit if they bring one. I then would break even and just have collected slightly high rent which will pay for my time in court.

In addition to this I charge a premium for the purchase price of the house. A couple of things to consider are appreciation and inflation. One year from now the house will be worth more from appreciation as I feel we have hit the bottom and another thing is that 100K will be worth 3% less next year IF inflation was AVERAGE. I expect inflation to be very high though so make sure you account for this. I will add expected appreciation, and inflation to it’s full asking price. It’s full asking price would be on the higher end of what I could sell it for today.

They have the possibility of winning in a very large way if they purchase today. We are most likely somewhere near the bottom. Typically in market conditions where stagflation does NOT occur (like it did in Japan for 10 years), the economy will rebound very quickly. Quickly enough where that house could appreciate significantly in just one single year and they could have instant equity on the date of purchase EVEN with your asking full boat for the house.

You are doing a huge favor for them that NO bank would do. They won’t treat the property any better than they normally would if they were renting. Anyone who tells you different is either a liar or someone who doesn’t have experience with lease options and is doing nothing more than quoting lease option “Gurus”. You are also stepping into a situation where large legal fees MAY be required. Etc.

This is why you need to create a situation where YOU won’t end up getting burned and coming out with the short end of the stick.

What about structuring the contract, is it just a std lease (probably with some non-standard terms in an addendum) and then an option contract? or do you use some sort of non-std hybrid of the two?

Definitely NOT a hybrid. Separate contracts. A standard lease. And an option to buy. It needs to be crystal clear to the judge that the two are completely different. That they are RENTING from you with standard Rental terms. You want to give NO possibility that anyone could think that the person was BUYING the property from you until they actually exercise the option. That way the judge will not give them “equitable interest”. That is what they will be suing you for if you find yourself in court so that is what you protect yourself from upfront.

In most cases you will not find yourself in court though. At the end of their lease, when they break the news to you that they will NOT be exercising your option to buy, I like to act towards them that they screwed me and NOW I have to deal with the financial costs of selling the house AGAIN which can be quite expensive. Especially with Realtor fees. I tell them that I was counting on them to buy the house and I am really disappointed. I tell them that they should have actively done what was necessary to repair their credit and that they had a whole YEAR to do it. I remind them of our conversation when we made the agreement about starting to repair their issues right away.

I whine a little more about my disappointment and eventually give them an offer to move out within a couple of days with everything exactly how I rented it to them and I will give them $500 or $1,000 moving expenses. Possibly $500 up front and $500 at the end. That way they got a little money back that I didn’t have to give to them, I don’t end up having to deal with court, they didn’t damage the property on their way out due to anger, and in the end, I win since they screwed me over and didn’t buy the house for our previously agreed upon price. And if they didn’t screw me over and they exercised the option, I still win as we originally agreed on a nice sales price.

How harsh of penalties do you impose upon them if they break the lease (something as simple as being late on rent to something more severe)? Do they lose their option fee, what happens to the money from their rent credits, etc?

If they break the lease then you need to evict. The Option Consideration and rent credits are non refundable. Herbster

How harsh of penalties do you impose upon them if they break the lease (something as simple as being late on rent to something more severe)? Do they lose their option fee, what happens to the money from their rent credits, etc?

You’ve got to remember that lease-option tenants are just tenants. They are no better or worse than any other tenants. If they don’t pay the rent, evict them and keep the security deposit (per law), option premium, and rent credit.

The other thing to consider with lease options is that you’re looking for someone with bad credit to show up with a big pile of cash (option premium and security deposit). That’s what a lease-option buyer is. If they had good credit, they would just buy a house and get the money from the bank. In many markets, it can take some time to find such a lease-option “buyer”. While you’re waiting for this person with bad credit and a big pile of cash to show up, you could have been renting the apartment to a normal tenant. You’ve got to consider that lost rent into the equation. Also, realize that the higher the rent and option premium, the longer you will likely wait for a lease-option buyer. Hooch’s $5,000 option premium would be great, but that would be nearly impossible here in Ohio for the typcial lease-option property. A more typical option premium in my area is more like $2,000 and the rent is more like $50 higher than normal rent.

These were just a few points to consider. In think in the end that you’ll find lease-options aren’t really that different than normal rentals.

Good Luck,


All these are state specific laws. In Texas a tenant has the right to pay rent and that is. A buyer has a lot of rights. If you don’t sell a buyer a house that he has a contract to buy you have to give him his money back. That can include all the money they have given you over the past 2 to 3 years (what you and I call rent and fees). That is why you have to ask locally how to do what you are wanting to do. Real estate is local…you have to have local knowledge.