Positive Real Estate Professionals

An avid reader of Positive Real Estate Professionals asked me a little while back if I would take the time to write on this subject. I believe that it is something that we need to shed some light on. Her main question was when is it a good time for a home owner to offer their home as a rent to buy option and when is it a good time for a buyer to use this option. In preparing to write this post, I decided to email a few of the professionals throughout the Real Estate industry and get their input on this subject as well. So, without further ado, let’s dive into the meat of this subject.

First of all, I think we need to talk about “rent to own” and what exactly it means. In the scheme of things, rent to own is basically used when a person might not have stellar credit to buy. It is also used by people that might need some extra furnishings for a short period of time and really do not want to buy them outright. Places like Aaron’s and Rent-A-Center make a living off of this very concept. With that said, this concept is not limited to the furniture and appliance industry. This is also a viable way to sell your home as well as purchase a home.

Renting to own in the Real Estate industry is better know as a “Lease Purchase” or a “Lease Option”. It basically is drawn up with a limited rent phase that allows the buyer of said property in live in the property in order to gain equity over the elapsed time. During this time, a portion of your payment typically goes toward the purchase price of the property. The rest is basically “interest” paid to the current owner. When the lease matures, usually in 12 to 36 months, the payment in full is required. This means that the buyer will have to bring another option of financing to the table.

One of the biggest reasons that a buyer does this is because they cannot get financing under their current circumstances. They can use this time to build up some extra money or correct the credit issues that they might have. I was speaking to Eleanor Thorne over at http://stevethorne.mymarketingbook.com and she added “As a Buyer – a rent to own would make sense (in our part of the country) when you have evidence that you can ACTUALLY purchase in 12 months or less. If you have longer than this, IMHO – you should not enter into this type of agreement.  So if you were BK (bankruptcy), and you will be eligible to purchase in 6 months – and you’ve reestablished credit… go for it.  If you have a home to sell in another part of the country, and you need to amass cash – and can do that while you are in a rent to own – go for it… otherwise I wouldn’t.  I say that because economist expect unemployment to go over 10% in the next 9 months.  A seller might be put in an unfortunate situation – and you might lose everything you’ve put into the property.”

Rich Dansereau of Rich Talks Real Estate also stated “Buyers might be new to an area and want to get to know it before they buy. They might have just started a new job and need to be able to produce more employment history to be able to qualify for a traditional loan. They could be just out of college and literally have no work or rental history.” He also interjected “If a seller is at risk of losing their property because of job loss or some other hopefully temporary event, this could be a means to help them afford to retain it. Can attract buyers who might not be able to get financing at that particular time.”

That brings me to the other side of the coin. When is it a good time for a buyer to enter into this type of purchase? Well, that is easy to answer. If you run into a client that “CAN” actually make the payments, but seems to have some issues getting the financing, then it might be the right time to enter into this type of arrangement. With that said, this is something that as a seller you need to consider at the point of determining that you want to sell your home. Adding another finance offer to the home might just bring in more offers for you to entertain. I was chatting with Debbie Malone over at My Lynchburg Home and she interjected “Having a clear understanding of the lease terms is key for the purchaser. We’d only do a one year lease with a non-refundable deposit. Be clear on how much of their rent will go toward purchase of home (they don’t get it back if they don’t purchase). Who is responsible for maintenance, upkeep. Must see the lender 3 months prior to the end of the lease to verify they’ll be able to purchase. If they don’t purchase by the end of the lease, we’d renegotiate terms.” I think that she brings out some great points in this statement. Having a clear understanding of the terms of this contract is a must. If need be, you will want to get a Real Estate Attorney involved in the deal. It is better to be safe than sorry.

“From the sellers stand point if they just can’t get their home sold due to market conditions and don’t want to give it away at a below market price, a lease purchase is one way to at least get some income coming in.  Of course the buyer must be WELL qualified and able to handle a “mortgage payment.” added Sandy Noll from Let’s Achieve Your Goals. I think that Sandy hit the nail on the head by stating this. Many homeowners are giving away their home. This is one of the ways to make sure that does not happen. Being able to get a qualified buyer into your home is the ultimate goal and it can be achieved by offering this type of financing.

To bring this to a close, I have one more person that interjected some information for us to consider. Fred Chamberlin of Eugene Loan Guy was one of the first members in Positive Real Estate Professionals and one of the most knowledgeable loan officers that I know. Over the time that I have known him, I respect his input on many subjects. Fred wrote a perfect article that ties into this very topic. I think that you should take the time to read Owner Carry Contracts vs. Due on Sale Clause. This will shed some light on the subject.

As always, we are here to answer questions that you might have. If you are in the market to buy or sell Real Estate, then please check with one of our professional members. They are all here to help you get the best deal for  you.