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From a sellers perspective, is this a good option? Has anyone had any experience with the Rent To Own options to buy? We are reading about them but want to know, as a seller, what is the fine print that most people miss? We have a local company that specializes in these, but not sure how we can trust them without doing our homework first. If this helps, we currently live in Alabaster, AL.
From a sellers perspective, is this a good option?
That mostly depends on whether you REALLY want to sell or not.
Most R2O deals never actually close which is largely by design.
Quote:
...what is the fine print that most people miss?
That most "buyers" are living a pipe dream.
They don't have down payment or closing money now and they never will.
If they ever do scrape together enough it's far more likely to be spent on a new TV
or wheels for the truck or if they're more responsible ones... their child support arrears.
A common Lease/Option actually contains 2 documents (among others perhaps). One, is a regular lease agreement for the rental aspect and the other is the Option to Purchase agreement. Typically the buyer puts down a very substantial deposit , say $10,000 to $20,000 to show they are serious. If they do not exercise their Option by securing conventional financing by the due date (usually 1 year) they forfeit this deposit.
The downside to the owner is you are taking the property off the market for the option period and cannot sell to anyone else during that time.
You definitely need to speak with a qualified realtor and a real estate attorney to see if your needs can be met by this type of arrangement. If you really need to sell, listing the property with an aggressive price for your market may be a better idea.
I Dk of a single rent to own that went the distance to closing. That I DK does not mean that once in a blue moon it happens, somewhere to someone.
I do know of several owners who use this strategy to charge greater than market rents to people who are not qualified to buy but hope to do so, one day. That day never seems to come.
From what we have been hearing from real estate agents is that the property is more likely to be damaged because they are angry that they are still not in a position at the end of a lease to buy the property. But at that point, they will lose all the money they put down and the extra money they paid each month. What if there is a clause in the contract that they must be active in a program that helps restore their credit? Just trying to figure out the best option for us.
Again, just want to thank all of you for your input. Much appreciated.
The BEST option is to sell (at whatever the best price you can get may be) and then to move on.
If you're interested in being a landlord... well, that is a whole other set of discussions.
Most of those will begin with similar advice.
If you're in a position to be a lender (a lender of last resort for a unqualified borrower)...
well, be sure you have a good lawyer draw up the papers and have both (jaundiced) eyes open when you sign.
We've done a few lease/purchases over the years as the seller (we build and have rentals, and sometimes we allow a lease/purchase, because we don't care whether we have a tenant or sell the place, as long as the terms are right). I don't believe we have ever had one close. We had one we came out about $10k ahead, but the last one, the tenant had more in damages than what their nonrefundable down payment was. So that is a risk you take on a lease/purchase.
Oh, and a note, the terms "Rent to own", "lease/option" and "lease/purchase" do not always mean the same thing. We always do "lease/purchases", which means they have a contract to purchase the home, on a later date, rather than an option they may choose to exercise at some point. All the terms are negotiable...down payment, whether any of the rent goes toward down, whether there is a premium on rent, who pays for repairs, what changes are allowed, when the purchase price gets set, etc.
Rent to own are rarely good deals for either buyers or sellers. They can end up being bad for both sides in some cases. It ends up being the last option and least attractive for both as well. And it seems to generate the worst behavior of both sellers and renters. Many start out great but quickly deteriorate.
Sellers: The negatives are that you still own the property, that you would may have prefered to sell, generally you own it for another year. So that's a year of property taxes, insurances, etc on a property you don't use and may not get any income out of. It may block you from buying your next property as well, so you may end up renting as well. You may not really be able to be a landlord, but that's what you have become, sometimes at a long distance. Most people with bad credit also don't have large amounts of money to put down, so most will have very little "skin" in the game. You may be taken advantage by people who know the ins and outs of how these rentals "work" and may be scamming you for free rent from day one, because they know you don't know any better. Most people will lie, if that is the only way they can get a roof over their heads.
There are no guarantees your renters will become a buyer by the end of the lease, no matter how well the legal work is written or upfront money you may have collected. So you very likely have a property you still have to sell next year. The renters may damage your property, stop paying the rent, become problems for your ex neighbors etc. The risks are high. You may be better off letting the property sell for a lower price then you may want, just to get it off you hands (and minds). It will cause plenty of stress no matter how well it goes. In some cases when the renters still want to buy, their credit may still suck, so you take the risk of another year of renting.
Renters: I didn't put buyers for a reason. Most rent to owns, don't lead to the renters becoming homeowners. Most times taking a rental you know is a rental is a better idea. You don't get any illusions that the property could be yours someday, and aren't disappointed when it doesn't work out. The rent may be more reasonable and there may be more choices. Rent to own buyers need to understand that very few sellers are interested in doing rent to own due to the risks. Most sellers really can't afford it, need the money out of that property to buy another one. They don't want or need to be landlords and aren't interested in being one. Its not like a regular rental, that when something breaks, they may not fix it, they may require you to do it, if that is how the lease is written (many are). Many conveniences of a regular rental are not present in a rent to own.
The property choices are very limited. Instead of 40-50 choices in your price range when buying conventionally, there may be one or two. You may not find something close to what you may want or need. It may be much smaller, may not have what you want, be in poor condition or not in a neighborhood you otherwise would have chosen. You could end up hating the house itself, even if you were OK with it when you signed the lease. The landlord may be charging higher then average rent (which you don't get back if you don't buy). The landlord could be running a long running scam or the terms may be tilted greatly in his favor. If your credit doesn't improve and you cannot buy the house, you likely still have to move because the landlord really wants to sell the property and they sell it to someone else.
Both: A lot of things have to happen for a rent to own to work. Its a far more complex deal. By that nature, more things can go wrong with a more complex deal. More things can go wrong as more time goes by, and since most rent to owns are at least a year long there is more time for those things to go wrong.
I have a unique situation, my husband and I just put a contract on a home in arizona, (we are in florida), with the contingency of selling out home which is listed, anyways, the owners live in chicago and are 83 years old, they agreed tot he contingency as the home has been sitting since last april, we just had an inspection done and the outside is wood and needs done badly, so our deal is we give 20,000 in escrow till june 1st, if our home does not sell we give another 20,000, up to december 31,2015, in the mean time we w ant to do some repairs on the home so we are wanting to add a lease purchase on top of it so we can not let this house get in further dis repair, probably 1,000 amonth starting april 1st, now we are hoping our home in florida will sell asap, but we cannot lose the house in arizona, its a rare find for us and my husband is picky about location, any thoughts on this, I fell bad for the owners his wife had a stroke so they had to move back to the midwest, i do have a clause in the purchase contract if something happens to them, the heirs are to go thru with this deal. please private im me if needed, we don't have alot of money to just lose, thanks so much
I have a unique situation, my husband and I just put a contract on a home in arizona, (we are in florida), with the contingency of selling out home which is listed, anyways, the owners live in chicago and are 83 years old, they agreed tot he contingency as the home has been sitting since last april, we just had an inspection done and the outside is wood and needs done badly, so our deal is we give 20,000 in escrow till june 1st, if our home does not sell we give another 20,000, up to december 31,2015, in the mean time we w ant to do some repairs on the home so we are wanting to add a lease purchase on top of it so we can not let this house get in further dis repair, probably 1,000 amonth starting april 1st, now we are hoping our home in florida will sell asap, but we cannot lose the house in arizona, its a rare find for us and my husband is picky about location, any thoughts on this, I fell bad for the owners his wife had a stroke so they had to move back to the midwest, i do have a clause in the purchase contract if something happens to them, the heirs are to go thru with this deal. please private im me if needed, we don't have alot of money to just lose, thanks so much
From what you describe, it sounds like you will be out $40,000 if your house doesn't sell this year. So, you'll need to be very sure that you can sell your house in Florida.
Instead of paying $1,000/month to rent the house in the interim, I think your time--and money--would be better spent by getting your house in Florida ready for sale and doing everything you can to make sure that it sells. Sell your house, then move on. Don't complicate matters. Besides, unless the house in Arizona needs a roof or is open to the elements, letting it sit for a couple of extra months won't make that much of a difference.
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