Two years or four? I can't decide how long to make the term

Question

I'm setting up a rent-to-own on a small house as the buyer and the owner has left the term open for me to propose. My credit needs about eighteen months of clean payments and a bit of collection cleanup before a lender will look at me seriously, which is what pushed me toward this in the first place.

A 24 month term keeps the price close to today's number and the owner is far more likely to sign it. It also forces me to actually do the work on my file instead of drifting. If I miss, I lose the fee and the credits, and 24 months is not much cushion if one thing goes wrong with my income.

A 48 month term gives me room to fail once and recover. The trade is that the owner will want a higher strike price to sit that long, and I'll be paying above-market rent for four years to build credits toward a number that may or may not still make sense in 2029. There's also the chance I just get comfortable renting and never pull the trigger.

The people I've asked split down the middle, so I'd rather see the room vote than keep collecting one-off opinions.

tylerbrooks9 · Answer

I'd rather have a short term with a written extension option than a long one. Ask for 24 months with a right to extend twelve more for a second fee, priced now. The owner gets a near-term decision, you get the cushion if the credit work runs slow, and nobody has to guess what a 2029 price looks like today. Whether an extension right like that has to be in the same instrument as the original option is a drafting question, so have someone licensed in your state look at it.

raj_mehta14 · Answer

The part I'm still turning over is what the extra two years costs in rent premium. If your credit portion is $250 a month over market, four years is $12,000 of above-market rent that only becomes valuable if you close. Two years is $6,000 at risk. That's the number I'd want next to the strike price difference before voting.

Two years or four? I can't decide how long to make the term

2 replies