Thank you in advance for helping me decide my investment strategy!
I live in Houston and as my first investment I am looking at single family homes to rent out long term. However, I have also been reading about the benefit of rent-to-own and am curious what may be the better strategy for Texans? I have read in Texas you cannot have off any sort of “rental credit” included with the monthly payment…If that is indeed the case, how are these arrangements completed in Texas?
In Texas I know a Lease and an Option to purchase must be two entirely different agreement and neither agreement can be tied to the other.
This makes it hard to get lease / options in Texas because if the person leasing suddenly has to leave and even if the lease is settled the option remains in force basically holding the landlord hostage because the property can’t be resold and the property has to be only rented month to month to allow the option holder the ability to exercise their option and take possession of an empty property at any time.
You have to have the ability sometime during your agreement time to at least close by FHA (3.5%) down plus closing costs.
Rent to owns can be great investments but it may be more hassle for you if you’re just starting out. The right tenant for rent to own is someone who is looking to buy, has more money to set aside for their option to purchase, but doesn’t have enough for a down payment and WILL have one in 1-2 years - that’s a small pool of renters compared to the amount of renters who are simply looking to rent.
If you do go ahead with a rent to own keep that tenant criteria in mind. Make sure they have a reasonable way of making the right to purchase go through and that there’s a good reason why buying a home right away doesn’t make sense for them.
Those guys down in the valley were using options and contracts for deeds to take advantage of the fine people down there so the laws were changed dealing with executory contracts to make them undoable in Texas. You can, however, get simular results with owner financing. The problem is these tenant/buyers never convert the deal and this leaves you foreclosing instead of a simple eviction.
I agree with EquityEric, I think a buy-and-hold strategy is better for a newbie investor. Texas has proved to be great for real estate investments - both for buy-and-holds and for Airbnb investment properties. I think having the consistent additional income is better financially and less hassle. If you rent out the property for a few years, the property will appreciate, which is a much better ROI than rent-to-own.