legal questions about rent contracts

[IndyGunworks]

My neighbors next to me have offered to either rent, or rent to own my house from me when my wife and I finally get our house built here in a few months. They however just signed a new lease for the term of 1 year. They have been in the house for almost 3 years and the middle year they were not technically under contract. I have offered to put 1k into an account for them to make up for the 1k they would be loosing. If they fulfill the two year lease that I would require and there is no damage then I would refund them the 1k that I put in there.... If they rent to own they would give a 3,500 dollar down payment and at any point during the contract they can outright purchase it for what the payoff of the loan is and the 3500 would be given to them as a down payment to the bank.

My question is if they break their contract are they susesptable to any other legal ramifications other than loosing the deposit? Can they be sued for the remaining monthly balances? This is really the last hold up before they commit allowing my wife and I to go full steam ahead in the process of building. If we closed on the construction loan today we would expect around 5 months til we can move in. (its a modular)

 

[Bunnykid68]

Contact 88GT, she seems to know a lot about these things.

 

[woowoo2]

My question is if they break their contract are they susesptable to any other legal ramifications other than loosing the deposit? Can they be sued for the remaining monthly balances?

They should get their deposit back after they pay the remainder of the lease.
They are on the hook for the monthly rent till it's rented out again.

Of course, it's up to the landlord at that point.

 

[IndyGunworks]

I found a section of the least that says with 60 days notice you can pay 1,200 dollars to terminate the lease early, then it says that that does not include damages... does that mean they will get the deposit back less damages provided no damage?

 

[Caleb]

dave ramsey is against rent to own, too much room to get screwed over

 

[Dirtebiker]

Better to be the seller than the buyer!
Yes, if they back out of the lease, and have not damaged the property, AND pay the early out fee, you should then owe them the deposit.
You can word the contract however you want!
Make sure you can afford BOTH house payments in case they DO back out! Expect it! It happens often!
Yes, they can be sued for the remainder of the lease if they break the lease early!

If you have any doubt that you can keep up with both house payments on your own, then sell the house outright BEFORE getting your new mortgage!

 

[Caleb]

If it's not in writing, it never happened

 

[Cameramonkey]

This might help... You may already know, but its illegal in Indiana to double up on the lease... you cant claim remaining rent payments if you (as the landlord) lease out the property before the end of the original lease to somebody else. Just wanted to throw that out there if it ever came to pass.

So if they bail 6mos early and you rent it out a month later, they are only on the hook for one month, not 6. (you cant effectively collect double rent for the last 5 mos of their contract) I think you can still hold the deposit though if the lease is written right.

bear in mind IANAL so double check my "facts" with somebody in the rental/real estate industry.

 

[IndyGunworks]

Just to avoid it becoming the topic of discussion.... we can afford both mortgages AND the increase in utilities, without a renter we would only be adding around 200 per month into savings w/ a renter it will be right around a grand.

 

[Dirtebiker]

Just to avoid it becoming the topic of discussion.... we can afford both mortgages AND the increase in utilities, without a renter we would only be adding around 200 per month into savings w/ a renter it will be right around a grand.

Is there a reason they can't just get a mortgage and buy the house now? Or is it a matter of not being quite sure if they will be purchasing it?

Make sure, in your contract, that they are responsible for ALL upkeep and maintenance.

 

[IndyGunworks]

I am not willing to sell the house outright right now which is why they want to rent to own.... If the housing market comes back to what it was when I bought the house in 2006 I will sell, but before then It just seems that I would be throwing money away while the market is at its low.

 

[Caleb]

I think you need to check your rent to own contract with an lawyer

 

[88GT]

I am not willing to sell the house outright right now which is why they want to rent to own.... If the housing market comes back to what it was when I bought the house in 2006 I will sell, but before then It just seems that I would be throwing money away while the market is at its low.

It seems that way, but it may not be. Renting is a bad idea on a home you intend to sell. Renting is great for a home you intended to be an income-producer. Tenants will be tenants first and buyers second, if at all.

And if you are not selling the home now, then you don't really have a RTO contract, you have a lease, with enticements for the tenants to purchase at a later date. RTO agreements would include sales purchase terms, including a portion of the rent that would be applied to the purchase price of the home, as well as an end point to the rent payments and a deadline for when the sale must close. Which makes them even more of a renter because they have very little vested in the purchase side of things. (If you do exercise a bona fide RTO, you should have them fork over a sizable down payment to be held in escrow. Successfully closing on the sale means they get to apply it toward the purchase price. Defaulting on the sale means you get to keep it (or a portion of it) for their default.) In short, RTO contracts ARE purchase contracts. They just happen to be a seller safer version of the land contract.

Not that any of this is a bad thing. But renters are unpredictable at best, and usually unreliable. If they don't have a vested interested in the purchase, they have little reason to behave any better than any other renter. Nothing worse than having renters wear-and-tear a house up and then not buy it. All that money you think you're saving by not selling when the market is low will be eaten up with the repairs, re-paint, etc that you will have to do to get it ready to sell again.

Is the principal of the loan higher than the market value of the property right now?

If you're doing your cost benefit analysis assuming the tenants will perform, I suggest a different strategy. Assume they won't purchase. If they do, then all the better. If they don't, you won't be kicking yourself for the unexpected out-of-pocket costs incurred to get it back to sale condition. Which means that taking the small loss on the sale now might be a better option than RTO or lease that never results in the sale. There's also the opportunity costs of the money you have committed to the current home. Could you use that money better elsewhere? And know that renting always costs more than one thinks it will. Always.

These are just points to ponder. There's no real right or wrong answer, just what is the best decision for you. But I usually counsel my clients who are looking at selling vs. renting it out to stick with the sale. Or choose the rent option only if you include failure to exercise the option to purchase AND significant out-of-pocket costs at the end of the lease term.

I think you need to check your rent to own contract with an lawyer

And this, of course.

 

[92LX]

Just one more point......

In 12 years of landlording, I have had carpet in good enough condition to sell after a renter exactly 1 time.

So, if you rent, then have to sell afterwards, make sure you include the cost of new carpet. Carpet cleaning will help, but it still will not sell and show as well as new. Same goes for paint. I have not had to repaint exactly 0 times a renter. Even ones there for less than a month......

If you go to sell, make sure the house is spic and span with new paint and carpet, and it should sell quickly if priced reasonably. If it has smudges on the walls, carpet, and holes in the walls, and dirty window blinds/shades/drapes. It will sit there a lot longer and go for a lot less money.

 

[RobbyMaQ]

^^
10 yrs for me... Id suggest 25-30% over mortgage (minimum) to cover maintenance on the place while renting.