Pro's and Con's of Lease to Purchase (Realtor, agreement, closing)

[phreespirit74]

My realtor is asking if this is something I would consider. We have been considering renting the property until the market recovers, is this a better alternative? This property is being sold as the result of a separation, so the goal is to walk away from it as soon as possible. With the condition of the market that could take up to two years of renting anyway before we suffer no loss.

Does lease to purchase generally secure a better occupant than just straight renting?

Pros? Cons?

Thanks!

[middle-aged mom]

Hello again.

You have asked a better question and will get better responses.

As I mentioned in my last post/other thread, rent with option to buy is uncommon in my area. Of the few that occur, I am not aware of any that have resulted in a sale. They are usually done in my area by inbound relo folk who are not certain if they will remain in the area.

Generally speaking, the rents are usually higher than one without the option because a percentage of the rent is rebated to the buyer.

No doubt experiences will vary throught the U.S.

[kevcrawford]

It's very rare that this works out. You may get someone into your place, but the odds that they'll end up buying aren't good at all.

[orlandoincolorado]

There are a lot of issues with them. A perfect scenario would be, who is responsible to replace the furnace in the event that it breaks? Typically the Seller thinks that the buyer should, and the Buyer thinks that the Seller should. There are a lot more scenarios too like taxes, roof leaks, etc. You are much better off to simply rent the home. Then, if the renter wants to buy it later on, they buy it.

[DMenscha]

Orlando is correct, I've never seen one of these things ever go to closing. I had one back in 1981 and it didn't work out (we bought another home). My last attempt ended up with the tenant getting a stream of 3 day pay or quit notices and an eventual unlawful detainer action.

[Josh Woods]

I have seen these go to closing but here is what you need to do:

1. Make sure your monthly note is covered (with taxes, your new renter's policy insurance).
2. Give yourself an extra $100.00 per mo to cover any expenses for repair.
3. Get a downpayment that is Non-Refundable of at least 3% of what the purchase price would have been OR MORE.
4. Get a credit report from the renter. Don't rent to someone who is behind in all their bills.
5. Make electric and water, cable, trash, ect in their name. That way your not on the hook if they default you.

If I was in your position I would ask for the following:

1. 3-5% downpayment
2. Rental Amount to cover mortgage + repairs.
3. A clearly defined set of where the money goes. Deposits go towards purchase price and perhaps some kickback on monthly rental amount goes to purchase price. Set your purchase price in advance. Hold the money in escrow (you may not be able to spend it in your state).
4. Define your purchase agreement when you do your lease agreement. Make sure the buyer is aware that at the end of the lease he will be needing bank financing for the home. Or that he gets no money back.

I wish you the best