For those who have a rent credit program, what’s the term of the agreement?
We use a lease option program but term is typically 5-10 years depending on age of the home, condition, what we have in it, etc. Lease is month to month so we can boot them if they break rules/are a nuisance, usually rent is $650-750 with option to buy for $10 after 60-120 payments have been made, option fee of 1-2 months rent.
What you’re describing is the very definition of a disguised and illegal mortgage.
Acts like a mortgage? yes. Illegal? no. Should you consult with your attorney on the agreement? Absolutely. If you want to split hairs, rent credit is a disguised mortgage as well.
Lease option is very common practice. Look around for other ways to structure as well.
I’ve seen some decks from larger operators recently that included the following:
“Our custom form LTO contract has been vetted by outside counsel and is Dodd-Frank compliant.“
I think because @Brandon operates out of CA he is much more sensitive to the issue (rightfully so, and correct me if I’m wrong). I’ve noticed it’s a non-issue in more accommodating states. Like anything else, risk/reward should be evaluated. Would I do it in CA, probably not. KY? Sure.
I know in Texas there is guidance that stipulates that if the option becomes available in a reasonable amount of time, such as one to two years it passes muster. The logic is this timeline attempts to alleviate concerns it’s a “forced rent to own” type of setup.
But yea every state seems to have their own spin on it, and the specifics - to my knowledge - continue to not have any testing in the federal court system.