Over the years, I have had many leasehold tenants in my Arizona rental home. As you know, I am not a real estate professional, nor do I have the time to actively participate in the maintenance of this property. All of the prior tenants have rented the home for 2 years or less. I was showing the home to new potential tenants and they were very interested in the Arizona home. But they were not interested in my year-by-year lease agreement that I usually offer. Instead, they proposed a lease-to-own contractual agreement.
I have owned the Arizona home since 12/31/1994. The house is in a great neighborhood, but the house has not received any major remodeling. The home’s appliances and building structure are beginning to look dated. I do not want to spend my personal savings on remodeling this house because the home’s useful life could come to an end very soon. I hired an assessor to determine the home’s current market value, but I received some bad news…. the home’s foundation is unstable.
The potential new tenants would like to rent the home for the next three years, from 1/1/2016 to 12/31/2018. Immediately following their 3-year rental period, I'd pass the home’s ownership over to the tenants. Before I accept their proposal, could you describe how this lease-to-own agreement is different than my prior year-by-year lease agreements? How will my bookkeeping journal entries be different than before? Could you provide comparison journal entries for me? And explain why each account is being debited/credited in your comparison journal entries? Lastly, do you think this lease-to-own contractual agreement is the best decision for me? What are the pros and/or benefits? What are the cons and/or negatives? Considering all pros and cons, what would you do? And why?