How Much Deposit Should You Ask for in Rent To Own Investmenthttp://www.jimpellerin.comhttp://www.riseforwealth.comhttp://www.realtyinvestmentseminars.comIn this article, I want to talk about how much deposit or how much option consideration you should collect when you are doing a Lease Option or a Rent To Own Investment.A Rent to Own is where people are renting your property where they have an option to buy the property. Now what that means is they've come in, they've found a property or they like your property. You've made an arrangement with them where they're going to lease the property from you. Usually for a lease price that's at a rate that's higher than what you would pay for normal rentals. For a price above what you're you're covering your costs. That varies depending on how much deposit they put down.A deposit in a Rent To Own a Lease Option Investment is actually what is called an Option Consideration in some circles.What that is, is the initial money that is put up as good faith to allow someone the right to purchase your property at some time in the future.How much? Well, it depends on the price of the property; it depends on their credit rating; it depends on your area and it depends on your expertise and how much equity there is in the property.Price of the PropertyMost people or a lot of people will say they want a minimum of 5% down. So if you are doing a $300,000 property that is $15,000. If you are doing a $100,000.00 property that is only $5,000.00. I tend to go on the lower side because keeping in mind these people that are trying to do Rent To Own do not have enough money saved up to purchase a property.So they are usually cash strapped and/or their credit rating is hurting. You will hear a lot of people saying if people are asking 5% down ... well if I had 5% I would not need to do Rent To Own. Which is usually the case or is the case in some situations.You can ask for 5% or you can ask for less. Just keep in mind that the less that you ask for you are increasing your risk because now these people do not have as much stake in the game.Also, keep in mind that the higher the amount then you are not going to be attracting as many people. So again, it is based on the price of the house so you can go anywhere from $5,000 - $15,000 or it can even be less.So for $100,000 property, I would usually ask for about $3,000 and for a $300,000 property I am in the range of $10,000. So it is a little bit less than then 5% but usually in the 3-4% range. Again trying to make it more attractive for people that are investing and trying to make sure that I get more investments.EquityThe other consideration is equity.Sometimes we do what’s called a lease-buy-back. A lease-buy-back is when someone who owns the house has gone out and gotten a second mortgage, has taken out a bunch of loans and has all this debt that they have to pay, but they still have equity in their property.So let’s say the property is worth $300,000 they only owe $200,000 on the property and need $50,000 to pay off their loan. So what we do is we might buy the property from them for $270,000 leaving some of the equity in there for them and pulling $30,000 out for the down payment.So again, the property is worth $300,000. They owe $200,000 in mortgages. They owe another $50,000 in debt. So that means they owe $250,000.00 and they have a difference of $50,000. We come in and buy it at $270,000 so there is $30,000 in equity. We use the $30,000 equity as a down payment on the property. Other investors tend to not want to do that because they find they haven't interrupted the buyer’s pattern enough so they are looking for more security.The other thing to consider is whether or not the owners will be able to buy the property back.Also, the higher the deposit they put down the lower their monthly payment would be. So if they put $20,000 down, their rent to own monthly payments would be a lot less if they only put $10.000 down. The idea is the initial deposit plus their monthly payment are credits we provide for the rent to own program. So all those come together to form the down payment when they go to purchase in 3 years.Just keep in mind that when asking for a down payment or that initial deposit that you ask for enough that shows some level of skin in the game when they are entering into a rent to own arrangement. But not so much that it’s making it hard for you to attract tenant buyers.