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Old 05-10-2007, 08:30 AM
 
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Can any one tell me how a lease purchase works and if it is a good thing to do?
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Old 05-10-2007, 10:12 AM
 
Location: Port St. Lucie and Okeechobee, FL
1,297 posts, read 3,748,413 times
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Quote:
Originally Posted by bentlebee View Post
Can any one tell me how a lease purchase works and if it is a good thing to do?
The seller sets a price for the property that is good for the term of the lease purchase. For example, he says you can buy the property for, say, $300,000 any time in the next three years. He then takes it off the market. While the agreement is in effect, you are the only potential buyer, and your price is fixed at today's price. You then move into the house as a renter.

In return for taking the house off the market and setting a fixed price for you, you pay an additional premium each month in your rent. let's say the rent would normally be $1,500 per month; you agree to pay $1,800 per month. Some sellers, if they are very desperate, may not charge the extra amount.

Regardless of whether there is an extra amount or not, the agreement usually stipulates that some portion of the rent is credited towards your eventual down payment. This almost always includes the extra rent payment, if any, and may include a portion of the basic rent. This is negotiable. You cannot reasonably expect to have all of your rent credited towards purchase of the property, because the seller will have taxes, insurance and maintenance to pay, in addition to any mortgage payments they have to make. They would have to be incredibly desperate to lose a significant amount of this, although they may accept a small loss in order to have the bulk of their expenses covered.

At any time up to the term of the agreement, you have the right to apply the agreed-upon amount to your down payment and purchase the property at the agreed-upon price. Whether this amount covers your down payment is usually subject to the policies of the lender where you will get your mortgage. Sometimes, you may be able to arrange a seller financed mortgage if they own it free and clear, in which case the terms, including the down payment, are negotiable.

Usually, the reason why you enter into a lease-purchase agreement is because you don't have a sufficient down payment or can't qualify for a mortgage. Often, this is because you haven't sold your previous house.

Is it a good deal? If market values are going up, it can be a great deal, especially if you negotiate a portion of your basic rent to apply to the down payment. If housing values are declining, it can be a rotten deal, especially if you are paying a premium above the basic rent for the purchase option. If prices increase so the property is worth $400,000 and you can buy it for $300,000, you just made out like a bandit. But, if market values decline to $200,000, you will likely walk away from the sale and lose all the equity you built up during your tenancy. The same thing applies if you never get to the point where you can afford to purchase -- you lose that amount credited to your down payment, and the seller gets to keep it as payment for holding the house off the market.

There can be complications -- I've seen cases where the market value has increased so much that the seller regrets entering into the agreement and starts to throw a monekywrench into the proceedings. For example, they may suddenly get very picky about the date that rent payments are made and may try to get the lessee evicted if the payments are late or missed.

There is an intangible value to be considered in your decision. If you feel this is the best property you will ever find and feel it meets your every need reagrdless of price, a lease-purchase agreement is a good deal even if market values fall. However, you should never enter into an agreement on a house you don't really like, unless you are certain values will go up and you will get a bargain.

I hope that helps.
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Old 05-10-2007, 10:32 AM
 
1,418 posts, read 7,023,829 times
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Don't do a lease-purchase. These things have more ways to go wrong than you can shake a stick at, both for the seller and the buyer. Just lease and when you are ready, buy a place. If you are a renter, you will negotiate better terms by just renting and leaving all the ownership garbage off. If you are a seller, then just lower your price, dump it and write the loss off. If you like being a landlord and you are not making big payments to the bank on it, then just rent it and bide your time until the market eventually swings high again - then sell it.

Contracts for deed, rent-to-own, lease-purchase, all of this crap is used by con artists and desperate people - the "burn" factor is quite high.
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Old 05-10-2007, 11:00 AM
 
Location: NY to FL to ATL
612 posts, read 1,945,637 times
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I did a lease purchase for my last home in Florida because my identity got stolen and I needed time to get my credit straightened out to buy it. It worked out wonderfully for me. It all depends on the situation, if it's a house you really want, good neighborhood, good value, etc.
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Old 05-10-2007, 11:10 AM
 
Location: Port St. Lucie and Okeechobee, FL
1,297 posts, read 3,748,413 times
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Quote:
Originally Posted by Prichard View Post
Contracts for deed, rent-to-own, lease-purchase, all of this crap is used by con artists and desperate people - the "burn" factor is quite high.
That's a pretty cynical attitude; these are all legitimate vehicles if one uses due diligence. If the parties are reasonably honorable, there is little chance of a "burn". Of course, if one is so clueless that one can;t recognize a con, then I agree that they should not enter into one of these agreements. But then. they probably shouldn't enter into any agreement or contract; they're the types that get burned when they buy a used car.
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Old 05-10-2007, 12:51 PM
 
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I would not do it. I wait and buy
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Old 05-10-2007, 12:54 PM
 
1,332 posts, read 3,345,308 times
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Exclamation Get everything in writing!

My NEW neighbors are doing a lease/purchase with my EX neighbor. The deal they have is that they pay rent for two years and then that total amount is considered the down payment.

They're having issues. The owner/seller/ex-neighbor doesn't want to take care of problems which have arisen, but the tenants/buyers/new neighbors think it's his responsibility since they technically don't own the property yet.
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Old 05-10-2007, 03:07 PM
 
Location: Port St. Lucie and Okeechobee, FL
1,297 posts, read 3,748,413 times
Reputation: 1005
Quote:
Originally Posted by sunshinegirl View Post
My NEW neighbors are doing a lease/purchase with my EX neighbor. The deal they have is that they pay rent for two years and then that total amount is considered the down payment.

They're having issues. The owner/seller/ex-neighbor doesn't want to take care of problems which have arisen, but the tenants/buyers/new neighbors think it's his responsibility since they technically don't own the property yet.
Let's see if I understand this. They are essentially paying nothing towards rent, problems probably would not have arisen if they were not living there, and they expect the seller to pay to fix the problems? Judge Judy, where are you when we need you? I can hear her screaming at the new neighbors now, "You're idiots!"
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Old 05-11-2007, 09:39 AM
 
1,332 posts, read 3,345,308 times
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It IS confusing, isn't it? The renters/buyers are of the opinion that they're "renting" until the end of the two years, so the landlord/seller would be responsible. Of course, the landlord/seller is looking at it like they're "owners," so they should be fixing stuff.

The landlord/owner is house flipper and has a broker's license, you'd think this would all be spelled out in their agreement. To the renters/buyers credit, the place has never looked better and some things I KNOW were supposed to be taken care of by the owner/seller have not been. He's on to his next flip job.

You're right, Judge Judy would give 'em hell!
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