No Tenants, No Termites, No Toilets, No Trash – The Best Of Lease Options

People in the real estate business often refer to the 4 T’s of property management. These 4 T’s are, in no particular order: tenants, terminates, toilets, and trash. When you think about purchasing property to buy and hold for investment, your mind invariably shifts to the thought of becoming a landlord and thus having to deal with issues such as tenants, termites, toilets, and trash, and that is where the term “4 T’s” came from. And, in all honesty, the 4 T’s are just not something that most people want to deal with on a day to day basis.

One wonderful alternative to dealing with the 4 T’s, and any of the other hassles of property management, is to offer your property as lease-to-own. In this instance, you can write into your contracts that the buyer is responsible for all maintenance and upkeep on the property. By doing it this way, you effectively become the bank or the lender, and the tenant becomes the one responsible for the property, just as if they already owned it. You treat your tenant as the homeowner and they have the responsibility to act like they are under your mutual contract. So, when the toilet clogs at 3am they call their own plumber, not you, to come and fix it. And, they pay the bill for the repair as well.

The key to a good lease-to-own deal is screening your clients well. Most people looking at least-to-own property are doing so because they have an issue with getting a mortgage loan from a traditional lender, but who are still looking to purchase property within the next few years. Often times, these potential buyers have a recent bankruptcy on their credit, a recent divorce, or some other major life event that makes them a high risk for a traditional loan, and also makes them short of down-payment money.

When you are screening your potential clients for a lease-to-own property offering, it is wise to look at each situation individually and then come up with a decision on if you think that the person will be willing and able to make the purchase when the time comes. If you have someone who recently went through a divorce and yet has a stable job and good past history with money, they might make a good potential buyer. Conversely, if you are looking at someone who has shown horrible credit history and is unstable in the job market, you may want to exclude them as a potential buyer of your property.

Offering your properties as lease-to-own can be an excellent exit-strategy for investment real estate. By choosing your clients well, and by writing your contracts up to put yourself in the place of the lender, not the landlord, they can be a great way to go. And, they can make you a nice passive income at the same time.