I would like to see some examples of rent-to-own (or lease to own) contracts. I’m in Illinois but any state would do. Can someone tell me where to find this online or send me a PM. I’m just interested in getting ideas on how to put this deal together. I’m told that in some states these types of agreements are illegal but I’m not sure why.

Are you the Current Owner/LandLord or the Prospective Purchaser/Tenant ? For the moment, I will respond as if you could be either, because I don't know.

Land Contracts are illegal in some jurisdictions; but you should be able to draft some kind of "Tight" Rental/Lease Agreement that accomplishes your goal. Land Contracts are legal in Vermont; but I don't know about Illinois.

These arrangements usually collapse when the Tenant becomes too familiar with the Subject property, and "cools" on the prospect of owning it; or gains a better "feel" of what home ownership actually entails.

An understanding as to "Why" the Tenant cannot get a Mortgage at the present time, and a thorough reading of their Credit Report would be in order. You certainly don't want to get involved with someone and then find out that, even after 5 years, they still can't get a Mortgage, or put 2 nickels together for a Down Paymentl or hold a job for more than 15 minutes. There's usually a big "reason" why someone who wants a property just can't buy it in the normal way, and asks for Owner Financing or some kind of Rent to Own arrangement:

Sometimes people just have to wait until 7 years have passed since they last filed for Bankruptcy; or

Wait for the Settlement of an Estate; or

Wait for their Divorce to be finalized; or

Await the Life Insurance proceeds from the imminent death of their Spouse; or

Hold steady Employment for more than 24 months.

I have set them up with a substantial Non-Refundable Deposit up front (higher than 1st Month, last Month and a Security Deposit) and with the Tenant paying all of the Property Taxes, Insurance and Utilities for a period of time . . . . say 36 or 60 months, after which maybe $100.00 per month of the paid rent plus the Non-Refundable Deposit would be combined to serve as a Down Payment on a Conventional Mortgage.

It's like an Old Fashioned Christmas Club Account; only the Money for the Down Payment doesn't actually change hands until it is applied to the Purchase. Some people need an arrangement like this because they never learned how to save anything.

My experience is that the Prospective Tenant's eyes will usually glaze over when they hear the words "Non-Refundable Deposit".

"IF" you can come to verbal agreement on Terms, you can and then have an Attorney Draft a Contract which will work in your Jurisdiction.

I just had one of these die on me that has been in the Cooker since 2001. Now the Seller is back to square one. That Sucker gave all the accumulated money for the Down Payment back to the Renter/Buyer so that she could Post Bail and get her Husband out of the Clink. Then they left the State of Vermont for parts unknown. Par for the course !

Good Luck !

Be sure to know what your goals are -- whether you are the buyer or the seller. So far as I know, you can't do a Contract for Deed (aka Land Contract) here if you have a mortgage on the place. But in that case, you could quite likely craft a Rent to Own. Whether you are the tenant/buyer or the owner/seller, make sure the rules are well-defined as to what constitutes "failure to perform" by either party.

Just a personal experience:

I'm selling a cabin on a Contract for Deed here in SW Oklahoma. I like that better than a Rent To Own because 1) I still own the place until they make the very last payment and 2) I don't have to carry insurance on the place, or pay the taxes, or do any maintenance and 3) If they don't keep insurance on the place and/or pay taxes, they are defaulting on the terms of the mortgage and I can call their note/force them out.

I don't expect the buyers to keep the place . . . I do expect to get it back. At which time, I will rehab it and sell it again. With this particular property, that works for me, but that would not work on any other property that I own. Interesting thing, I can make more selling the cabin this way than I was able to make by renting it.

Might want to search

http://www.docstoc.com/


free doc sharing site

Here are some different legal aspects. Obviously this subject is state law specific, like a contract for deed can't be written by a REALTOR in my state, only an attorney can.

http://www.frascona.com/resource/jag1000occ.htm

http://www.frascona.com/resource/jag404ilc.htm

http://www.frascona.com/resource/jag92bsc.htm

Barb43 has the right mindset...always expect to get your rent-to-own property back after the Option expires. 99% of tenants do not end up buying the property for one reason or another. Good luck!

Good point Brian. It's best to get a sizable amount of "non-refundable" option consideration money up front. This may help encourage them to purchase the property.