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Old 10-19-2010, 02:51 PM
 
438 posts, read 898,220 times
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Hello,

My wife and I are currently trying to sell our condo. We had a recent showing and the party was interested but has to sell their place first. Their realtor asked if we might be interested in doing a rent to own option while they try to sell their place in another state (they are relocating to Chicago). We are considering it because we have been on the market so long and we found a house we would put an offer on if it worked out. Can anyone out there that has done this maybe give us some positive or negative advice on this? We aren't sure what to do. The obvious negative is that she doesn't sell her place and we are stuck with two mortgages. Is there some sort of contract that can protect us at all from this where she is obligated to buy after a certain period? Are there any other negatives? Are there any real good positives to help us make the decision?

Thanks!
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Old 10-19-2010, 02:59 PM
 
Location: NJ
17,579 posts, read 21,275,560 times
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You can't make someone buy your house. Even with a contract. You can possibly sue them. But if they don't have the money it isn't going to happen.
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Old 10-19-2010, 03:06 PM
 
Location: Salem, OR
11,024 posts, read 18,984,229 times
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I think the danger of rent to own in this market is declining home prices. So let's say that it takes them a year to sell their home. Your condo might be worth less in a year than now, and when they go to get a loan may have significant appraisal problems and your contract falls apart. Now if you are willing to come down to a future price due to the appraisal then you just need to work out all the other details...

and no, if they can't qualify for two mortgages then you can't force them to close by a certain date.
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Old 10-19-2010, 03:27 PM
 
Location: Boise, ID
5,596 posts, read 10,976,514 times
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Also, be aware that in qualifying for your own new loan, the lender will most likely NOT count any income from the lease. You will have to qualify to have both mortgages anyway.

Another negative is that you run the risk of having the potential buyer made tenant trash the place while living there, and then not close, so on top of having 2 mortgages, you have a $10,000 repair bill to get the place back to the condition it was in before.

Also, be aware that your taxes may increase as a non-owner occupied, and that you will have to have insurance both on the structure (as landlord's insurance) and on whereever your stuff is (as renter's insurance), so your total insurance bill might be higher than it was.

In my experience, probably only 1 out of 10 lease/purchases ever actually close. Take that for what it is worth.
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Old 10-19-2010, 03:54 PM
 
Location: Athens
470 posts, read 853,505 times
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As Lacerta wrote, most lease/purchase or rent to own options fail to result in a closed transaction.
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Old 10-19-2010, 04:12 PM
 
438 posts, read 898,220 times
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Quote:
Originally Posted by keeshonder View Post
As Lacerta wrote, most lease/purchase or rent to own options fail to result in a closed transaction.
Is this in most of the cases? What about this scenario the person who is renting just needs to sell their place then they will buy ours? I know it's very risky because who knows if she will sell...but just curious if you have seen this sort of case before and if they panned out..
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Old 10-19-2010, 05:08 PM
 
Location: Boise, ID
5,596 posts, read 10,976,514 times
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I work in a real estate office (not an agent), and I see the transactions of all the agents in the office. I have personally seen probably 25 or 30 lease purchase transactions. The ones that have successfully closed (only 2 or 3) have been very short term with a definitive closing date scheduled up front. Like if the buyer is just waiting to receive funds from somewhere and rents for 30 days ahead. More of an "early occupancy" thing than an actual lease purchase.

We are also property managers, so we do lease/purchases on homes that we've built in some cases, as we have total control as both the owner and the landlord. We actually haven't had a single one of those successfully close. They all turn into just normal renting situations for one reason or another. We have one house that we've had 3 lease/purchases fall through. All three turned out to be great as renters, but it could have gone another way.

We have another one right now that was supposed to be a lease purchase that we may end up evicting the potential buyers turned tenants. We sent them notice last month that they had failed to adhere to the terms of the lease purchase (paying additional down on the 1 year mark), and as per the terms of the agreement, additional money paid over the last year was to be handled as rent. Actually, I guess if you write your contract correctly, you could come out ahead. If they pay over market value for rent, and have a sizable nonrefundable deposit (applied as down ONLY if they close), you could come out ahead even if there are a reasonable amount of damages. But as Silverfall said, it may not be enough to overcome lost value if your market is still in freefall.
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Old 10-19-2010, 06:18 PM
 
3,783 posts, read 4,717,276 times
Reputation: 1842
Quote:
Originally Posted by Gunner0325 View Post
Hello,

My wife and I are currently trying to sell our condo. We had a recent showing and the party was interested but has to sell their place first. Their realtor asked if we might be interested in doing a rent to own option while they try to sell their place in another state (they are relocating to Chicago). We are considering it because we have been on the market so long and we found a house we would put an offer on if it worked out. Can anyone out there that has done this maybe give us some positive or negative advice on this? We aren't sure what to do. The obvious negative is that she doesn't sell her place and we are stuck with two mortgages. Is there some sort of contract that can protect us at all from this where she is obligated to buy after a certain period? Are there any other negatives? Are there any real good positives to help us make the decision?

Thanks!
You can protect yourself by getting a large deposit or option fee. For instance, you charge $1000 per month in rent. You credit the buyer say 50% to the purchase agreement. The buyer puts down $20k as a option fee. At the end of the year the buyer either purchases and this gets credited to the purchase or he forfeits the money. These numbers I completely made up off the top of my head, but i think thats how these lease purchases rent to own contract for deed etc work.
However there are plenty of downsides.
A)They can't sell there house, and yours was tied up for that long time.
B) They don't pay rent and you have to evict them.
C)They do major damage to your house.
D) Renting your house typically removes alot of tax benefits, and shields from liability versus it being a primary residence.
E) Homeowners insurance is more expensive.
Many others.

Obviously have a lawyer draw up the contract. And this isn't legal advice.
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Old 10-19-2010, 06:22 PM
 
3,783 posts, read 4,717,276 times
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Quote:
Originally Posted by manderly6 View Post
You can't make someone buy your house. Even with a contract. You can possibly sue them. But if they don't have the money it isn't going to happen.
Thats not true. A seller can sue for specific performance from a buyer.
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Old 10-19-2010, 06:38 PM
 
Location: NJ
17,579 posts, read 21,275,560 times
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Quote:
Originally Posted by jdm2008 View Post
Thats not true. A seller can sue for specific performance from a buyer.
And what exactly would happen if the buyers don't have any money and can't get a loan? It's not going to get your house sold.
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