How should real estate investors handle rent to own leases in which the tenants aren’t ready to buy? Deadlines may approach before certain individuals can even be approved for a loan. Even worse, tenants may be reluctant to sign rent to own leases because of personal fear.
What happens when the term is up and they haven’t been approved for a loan yet? Do you extend, give them more time, or kick them out?
First, determine their overall performance as a tenant. Their track-record with you should influence your decision.
If they haven’t attempted to improve their credit or haven’t been able to, don’t expect they will overnight. The credit process can be a lengthy one, meaning many applicants will take several months to receive approval. Some may jump through hoops for months, only to be denied.
This doesn’t necessarily mean you should kick them out. If they pay their rent on time and are generally decent tenants, you could let them stay (increasing rent at your discretion). If this is the case, you have the option to refinance and tap into equity or sell the property as a cash flowing rental.
If they haven’t been performing well as a tenant, then you’ll definitely want to look for an amicable exit for both of you.
They may not want to leave, so be strategic. Trying to forcefully push them out could lead to them withholding payment and possibly aiming a lawsuit in your direction.
It is important to remember that the bottom line supersedes a poor tenant. Keep your options open to maximize profit earning potential. Your options here may include: raising the rent to a level that they do not approve of, resetting the purchase price and terms so that they look for something more appealing, or selling the property. Just give the buyer fair warning or your reputation could suffer. Where possible, help tenants find a new home and make relocating easy. You may even consider offering a monetary incentive if it makes more financial sense in the long run.