State Specific Question About: PENNSYLVANIA (PA)

I own property that I am currently renting in PA. Since the tenant has been renting for the past six years, I plan to propose a rent to own agreement. If I enter into this agreement with the same tenant for 20 years or more, is it legal to raise rent every 3 years or so until the end of term? Or does it need to be a fixed rate, just like it works with fixed mortgage? Please advise.

Thank you,

Your tenant will most likely want a fixed rate. Even if you use an adjustable rate, the chances of a major rate in rates in the next several years is small. Since you will most likely be transferring all repairs and maintenance to them that will be additional reason for them to ask for a fixed rate.

If you want long term cash flow, that's ok, but statistics show that people move about every 5 to 7 years.

It might be in your interest to make the deal and then sell the note to a notebuyer. Just cash out and be done with it.

PLEASE, PLEASE, PLEASE seek legal counsel THAT YOU PAY FOR prior to doing this.

Are you truly going to "rent to own" ... or maybe lease option, installment sales contract, sale with Note & Mortgage? There are several types of owner financing out there and every one of them has different SERIOUS legal, financial and tax consequences.

Claudia, just don't do rent to own. If you want to sell your house, sell your house. If you want to sell you house and reward your 6 year tenant, sell for a bit less than market price, help with the downpayment, etc. If you want to have an income stream, sell and invest your profits in a peer to peer lending site like lending club. If you want to save on taxes, ask a tax advisor.

In TX, there are some very strict rules which, if not correctly followed by the seller, can result in jail time or in the loss of more than the worth of the house. People in TX were abusing the RTO, and so the legislature cracked down on those dishonest practices with very punitive penalties, which also affect those who just don't know all the ins and outs.

PA may or may not be similar. You'd definitely want to check with what your attorney says.

If I had a six-year tenant, I wouldn't want to mess with the dynamic by offering her the prospect of ownership. I'd leave the status quo as the status quo.

If I did want to reward a long-time tenant with ownership, I'd just sell the house outright, get my money, and be done with it. I spoke with someone who used to live in my own personal residence back in the day. His father had sold the house, and had carried the note... and then the buyer declared bankruptcy after about a year's worth of payments. The house was protected, went to him, and the seller was out of luck. Whether that loophole still exists or not, I don't know.

do a wraparound loan with first right of refusal.

Based on the latest version of the Dodd-Frank Act, there are a lot more pit falls for you to get yourself into. These include qualifying the tenant buyers and limits on the terms you can provide on the transaction. These vary based on it being an owner financed transaction to a current occupant. Hard to believe that I would be saying this, but things were better and easier when we only had to deal with the safe act.

Isn't this illegal no matter how you structure it, unless its owner to investor sale? Anyone that can answer, please post how to make it happen legally. I really want to owner finance deals and have not pursued it due to Frank-Dodd.

So far I have not been selling real estate. I have been selling options to purchase real estate. I then push them to get there own financing instead of having me carry the note. However if the tenant buyer doesn't buy the place in say three years.......then what? The rule hasn't been around that long but it would look like an installment sale to me.

If you do elect to do the owner finance, where you carry the note) there are four things that can make you exempt including only doing one per year or less and having the tenant buyer getting per approved by an independent third party (I use a mortgage broker).

Claudia,

Careful! Your "let me help this struggling family" gland is overpowering your "I'm in this biz to make some profit for my family" brain.

Rented, paying on time...why sell?

Also Dodd-Frank laws.

RTO is possible but in your case, why bother getting into a deeper, more sophisticated legal agreement?

BRAD

NE - owner financing is not illegal in Pennsylvania nor federally. However, the past few years there have been some changes and now there are different type disclosures and guidelines.

BUT, in Pennsylvania there is case law, and I don't know the citation, that should you try to "evict" and your "tenants" show up for the hearing and mention anything about purchasing/ownership/etc., the magistrate will dismiss the suit and send you to common pleas for foreclosure.