When you are doing lease to own investing or rent to own investing a critical step when you find a deal is to do your due diligence.  That means you, as the investor, need to do some checking on the home seller to make sure there aren't going to be problems.  What are some of the due diligence steps I take, or train my lease option students to take?

1. Order Pretitle Work - you need to look at the seller's title to see if there are any clouds or other things that would prevent the seller from selling to you

2. Check IRS/State Tax liens - usually these will show up on the pretitle work.  But the home can't be sold without paying off these liens

3. Check if the Mortgage is up to date - get a signed bank authorization from the seller to allow you to verify that their mortgage is current. It's also a good idea to verify the amount of the mortgage payment, because if the payment is higher than your agreed upon rent the seller will have to cover the difference.

4. Check if the property taxes are paid - The seller won't be able to sell the home without satisfying these debts too so you need to make sure they are being properly taken care of.

Not only is it a good idea to verify these things before you sign the deal, but it's not a bad idea to check up on some of them during the deal as well.  You want to make sure that the seller is going to be able to sell you their home when it comes time.  When you are doing lease option investing, or rent to own investing due diligence is a step you don't want to ignore.  For more on due diligence see my book, Investing in Real Estate with Lease Options and Subject to Deals.

When it comes to rent to own investing - when you are buying on a lease option - I tell my students to follow three basic steps in writing a proposal or offer to the seller:

1. Keep it simple

2. Do your homework

3. Determine your offer

Keep it simple - Sometimes we get too formal.  We want to make sure we have the proper letterhead and business cards and look official up front. We feel this gives us the legitimacy a seller expects.  However, counterintuitively, there are times when too much polish may in fact be detrimental to us because the seller finds it impersonal.  Save the formal documents for after the deal is negotiated, when it needs to be drawn up in detail.  That's how you keep it simple in rent to own investing.

Do your homework - you can't put together a proposal without first doing some research when buying on a lease option. You can't base your offer purely on what you think the home is worth; you must incorporate the comparables as well.  Comparables are key in rent to own investing, if you don't get the price right you won't be able to complete the sale on the back end and get paid.

Determine your offer - When buying on a lease option I usually include terms that will limit my risk.  One approach is to include a clause that says my lease option can be terminated within 60 days with written notice to the owner.  This provides an agreeable exit to problematic transactions.  Another method that I use even more frequently is to make the start of the lease option contract subject to finding a tenant-buyer.  This significantly reduces your overall risk and avoids having to begin funding monthly payments before you have your own funding source in place.

Remember rent to own investing doesn't have to be that complicated - keep it simple, do your homework and make your offer.