Using Rent-to-Own or Allow-to-Build as a Sales Strategy?

Does anyone use a rent-to-own marketing/sales strategy? I have discovered that a major land dealer markets their properties this way. They have a rent-to-own option and they also allow you to build while making payments. I have asked an attorney about using a lease-option to circumvent Dodd-Frank but he cautioned that a terms sale, lease-purchase or lease-option without a licensed mortgage originator is inadvisable.

I'm just wondering because I frequently get interested buyers that want to buy on terms and build a primary residence within the first year and I have to tell them that will not be possible due to federal regulations. Obviously, there are other liabilities which most land sellers seem to feel are also reasons not to allow buyers to build until the note is paid, but I'm still wondering what legal options are available.

Depending on the state, a true lease with option to buy should not be seen as a sale.

A land contract on the other hand would. But, like I said, states differ. Also you will find thag even the opinions of different attornies differ in on things, especially something like the Doss Frank act that has very little case law yet.


@suitedconnector - I looked into this several years back, for pretty much all the same reasons. I was told by a couple of attorneys that even with a lease-option agreement if it's written and worded with the intent of doing the same things (effectively) as what a land contact would do, it would still be seen as a land contract. "Regardless of what you call the document, if it looks like a duck and quacks like a duck, it's a duck".

Keep in mind though, if you're talking about land specifically, it's not going to be less problematic with regard to Dodd-Frank restrictions anyway, by nature of the fact that there's no dwelling (see this blog post for more details).

DISCLAIMER: I'm not an attorney and none of this is legal advice.

Yea, I have read that post several times. I was wondering about this again because of this dealer I found that is allowing rent-to-own and also allowing people to build on the land. An AZ attorney told me that you can only do one deal per year as a natural person or a trust, three deals per year in an entity without being licensed under Dodd-Frank. However, if your state has no exemption under the SAFE Act (AZ) you still have to use a licensed mortgage loan originator on every deal. Perhaps that dealer has a separate LLC for every property and transaction.

@retipsterseth Has anything changed with regard to Dodd-Frank since 2010 that would allow for someone to build on land if it was purchased using seller financing? I am looking to buy land using seller financing but I also want the ability to build on it. It is three vacant lots that I want to be able to build on one at a time and sell off separately. Is this possible using seller financing or a lease option or any other form of ownership that doesn’t require me to buy the land outright?

@jonesmatr I’m not aware of any changes, but I’m also not an attorney or the foremost expert on the matter, so take that for what it’s worth.