Rent to Buy: How to Make It Work For Buyers and Sellers

When I first saw the house I bought, I was not yet in the market.

I had great credit, but was a newbie Realtor® with a bunch of sales that had not settled yet. So in a few months, I would have a twenty percent down payment and closing costs pulled together. But when this house grabbed me by the ankles and yelled "Buy Me," I was not ready for prime time.

While I was previewing for a buyer, I stumbled across the place and returned to the office with stars in my eyes. When I told my manager and the listing agent how much I loved and wanted the house, they helped me come up with a plan to buy it.

It would be a "rent to buy" deal.

At the time, we were still in a buyers' market, and it was a time when it often took some creativity to get a house sold. Because our sellers were investors, they were willing to do whatever it took - within reason.

The market rental at the time was $1,000 a month. And we wanted to move in right away and settle within a six month time frame. So here's what we proposed:

• We submitted an offer to buy the house for full price, asking for 3% of the sales price for closing costs.
• We included a pre-settlement occupancy agreement that would give the seller $1,500 a month in rent, which was well above the market value.
• We submitted a copy of a strong credit report and a financial information sheet.
• We included a non-refundable earnest money check for 5% of the sales price.
• If we settled within six months, we got half of the rent we paid credited to increase our earnest money deposit.
• If we settled between six and twelve months we got only $500 a month credited to increase our earnest money.
• If we failed to settle within twelve months, we had to move out and we would lose our earnest money.

So there were very strong incentives for us to buy the place. It gave us chance to get below market rent and Dream House if we did what we said we would do. If we didn't, the sellers would get so much of our money that they probably wouldn't be that upset - we made it worth their time.

In the end, we settled in less than six months and everybody was ecstatic with the deal.

In many cases, people who are in my position come in with a rental contract that includes an option to buy at the end of the lease for an price to be negotiated when the lease expires. For owners who really want to sell, that doesn't give any assurances that they will be able to seal the deal when the time comes. The renter is a tenant in the District of Columbia. If he doesn't want to buy, it will be extremely difficult to evict them.

My approach isn't likely to work for buyers in a hot sellers' market, because there will probably be other buyers who can just come in with a simple offer that give the sellers their money in thirty or so days.

And even in a buyers' market, this can be a risky way to go for a seller, even with a lot of protections built in.

There is nothing better than a real live buyer who can settle quickly, but there is nothing worse than having an empty house or apartment sitting there as a non-productive asset.

Oh, wait! You could get a deadbeat buyer/tenant who stops paying "rent" and won't move out! That would indeed be the worse case. But you run that any time you have a rental property.

Um. That's why God invented credit reports and background checks!

If you are planning a move to or from the Washington, DC area, I can help! I am licensed in the District of Columbia, Maryland and Virginia. You may call, email or text me at:

Housepat@mac.com

202-549-5167

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