Russ, what happens if your
tenant-buyer destroys my property and becomes the Tenant from Hell?
The Key Differences Between Having
Just a Tenant Versus Having a "Tenant-Buyer"
Most people we work with initially miss the distinct differences between a conventional tenant and the "tenant-buyers" we work with, and are naturally concerned they'll get stuck with the "Tenant from Hell."
The Disadvantages of Having Just a Regular Tenant
While not all tenants are bad, and some do a great job at taking care of their rental, let's face it; there are horror stories of bad tenants who've destroyed property owners homes for a reason.
Tenants have very little "skin in the game" because they put down only a small, refundable deposit (usually equal to the first month's rent) which they'll get back at the end of the lease term if they've taken care of the property until the end.
They do not see your property as theirs, so they have nothing to look forward to with your property in the future - you do - but not them. Thus, there's no real incentive for them to care for the property like it was (or will become) theirs.
Human nature is to take care of what you own (or will own in the future). Think about it. We don't wash our rental car, but we'll wash and take good care of a car we've bought as our own.
As you've probably guessed, a great tenant is one who:
Has something to look forward to with the property in which they live
Sees the home as if it was theirs (or soon will be)
Has some real "Skin in the Game" by having put down a considerable amount of money upfront (that's non-refundable from the start), so they have a lot to lose if they walk away from the property
Wants to achieve home ownership, and not just rent a home for the duration of the lease term only and then move on.
Someone, with the permission of the home owner in writing first of course, will actually improve the property by painting it, making repairs (our tenant-buyers are responsible for the first $5,000 - sometimes more - in repairs contractually)
I realize that you don't want to put someone in your home that will be ungrateful, turn around and destroy the property, and then leave you stuck with the bill.
I get it.
And while there are no guarantees, even with a tenant-buyer that we send you, I hope that the information above has given you "food for thought" on the subject and demonstrated that yes, while there are no guarantees, at least with the tenant-buyer we send, you've got someone who is willing to give you a large, non-refundable deposit for your protection.
And of course, we:
Do a full background check looking for past evictions and felonies
Check their past rental history to make sure they've always been on time
Find out why they are not buying in the conventional way thru a bank now, and how long they need before they can qualify (usually 1-3 years)
Get a prequal letter from a lender with a full break down of their current credit situation, debts to income, past credit problems (if any), and anything else you may want to see
Their income for the last 12-24 months, especially if they are self-employed
A letter from the tenant-buyer if there are any gaps or causes for concern
All of this would then be presented to you, your Realtor and/ or attorney for review prior to our assigning of contracts, so you are never left in the dark as to who you're getting as a tenant-buyer - never.
My name is... Russell de la Peña, and I am a former Realtor with both Keller Williams Realty and Re/Max City Horizons out of Denver, CO. I'm originally from Los Angeles, CA, where I currently reside today, and I have authored a few books related to real estate investing and credit repair. I own a creative seller financing training school online and work with, and serve, new and seasoned real estate investors alike for a living.