Real Estate Law | Options for owner to sell home to current tenants
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Dear Mr. Feichthaler:
I have a rental home in Cape Coral and have some very nice tenants. They would like to purchase the home, but they do not have the credit to obtain a conventional mortgage. Is there a way for me to sell them the house while protecting my investment?
Gail D.
Dear Gail:
Many of my clients have the good fortune of having great tenants. And, like you, some hope to help those tenants on the path to ownership. The first way to consider is to act as the bank, and provide seller financing to them. With this method, you will sell them the house, transfer the property to them and hold a mortgage as a lien against the property. I recommend my clients only proceed with seller financing where the buyers can put down at least 30% of the purchase price. This is important to protect you from a potential declining market, as well as the costs that you would want to recoup through a mortgage foreclosure.
In your case, it appears that your buyers will find it difficult to make that kind of a down payment. You could consider entering into a new lease with an option to buy at the end of a specific period. In the lease, you can provide that a certain amount of the monthly payment apply to the eventual purchase. You can also require the buyers to make a payment for the right to have the option to purchase at a price-certain at a specific time. This will give your tenants more certainty as to their ability to buy the house, even in an increasing price environment. The negative to this is for you, since you will be committing to sell at the specific price in the future, not knowing what the future holds for price appreciation.
Another positive to providing seller financing is their ability to claim homestead tax savings and protection if they buy, but this will not be available if you hold as a rental.
Think carefully about the benefits and potential pitfalls of going forward with a lease-option or seller-financing. I hope you are able to make an agreement that works for you and your tenants.
Eric P. Feichthaler has lived in Cape Coral for over 35 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Cape Coral to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, and Cape Coral Kiwanis. He has been married to his wife, Mary, for 22 years, and they have four children. He earned his board certification in Real Estate Law from the Florida Bar, and primarily practices in real estate law and wills and trusts. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator. He can be reached at eric@capecoralattorney.com, or 239-542-4733.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.