Are you considering rent to own?

I am often asked by prospective tenants and buyers if I think rent to own transactions are good. (lease purchase/lease option) My answer is maybe, maybe not.  No two parcels of real estate are the same and no two real estate transactions are the same, and neither are the people in each deal.

Some of the factors that should be considered, some questions worth asking and should be discussed with clients are the following.

• Local market conditions, direction and trends. *No one can with 100% accuracy predict the future, but it is good to know what direction the wind is blowing today.
• Current client situation, objectives etc.
• Future plans, objectives and time frames of buyer/tenant.
• Will clients need to arrange financing, or will they close with their own funds?
• Has the client consulted a lender?
• Can they get a mortgage today?
• If they cannot qualify for a mortgage today, are they working with a lender to ensure they will be able to close on closing day?
• Is the purchase price within the amount the lender is willing to lend?
• Is the deal acceptable to the lender?
• Is some of the rent price going on purchase price? Will that be okay with the lender?
• The property in question, Comparative Market Analysis and Rent Price Analysis.
• The proposed purchase price and terms including rent price, security deposit, option fee and earnest money deposit.
•  Due Diligence on the property in question. (It’s much more than just a home inspection.) (Any buyers agent worth their grain of salt will advice a home inspection and  try to talk a client out of skipping that if they are thinking about  skipping it.)
•   Due diligence should be done now, if a client does not want to do that now, I recommend consulting with a real estate attorney and then discussing with me if you still want to proceed in that direction.  

I have heard good & bad stories and plenty of nightmares from both sides of rent to own transactions. The real estate rental market is a niche market; not all real estate agents specialize in that. Some agents just stick to the buying and selling side or do the occasional rental/rent to own deal.

People come into the market with different negotiating positions, knowledge, resources, objectives and sense of urgency.  Market conditions could favor one side or the other, sometimes it could be a more balanced market.

Seller financing is often lumped into rent to own, however that is a story for another day. I am sticking to the lease purchase/lease option today. They are similar and different.

To keep it simple I like to think of it like this.

1. lease purchase as we have decided and promise to buy this home at this price on this date in the future and we look forward to seeing you on the scheduled closing date until then I will be renting this home.  

2. lease option is  I think sometime in the future I may buy this home at this price. I will let you know sometime during this time frame and if  I want to buy we can set the date and time to close, but no promises yet. 

No one likes being stood up especially at the closing table, often makes for unpleasant phone calls to lawyers. Unexpected moves usually are not fun! (Unless you win the lottery or something like that.)  

It is worth mentioning that in addition to seller/landlords offering and willing to consider a rent to own deal, there are companies/investors that can buy properties for sale and then lease purchase/lease option to the tenant. (They are seeking a return/profit, so all of this applies in those cases as well)

Just like in the ocean there is no shortage of sharks, and they are not easy to spot most of the time. Then you throw in the scammers (is that person really the seller/landlord, the listing agent or the property manager? (Scammers are getting bolder and more sophisticated every day)

Are you on the fence whether you should buy, lease, lease purchase, lease option or seller finance? Should you go in it alone? (NO). Reach out to me today for a free in office, phone or virtual consultation.

As a REALTOR I enjoy helping my tenant/buyer clients make an informed decision, listening, advising, negotiating, guiding them through the process as well as recommending other professionals as warranted and wanted. I want to make sure my clients have all their questions answered and are comfortable with the deal before jumping in.  You deserve no less and I appreciate the chance to earn your business.

Let’s get started!

*This is not legal, financial or tax advice. If you need or want legal, financial or tax advice an Attorney, Financial advisor or Tax advisor should be consulted. *This article is for general real estate information purposes only; it is no way meant for specific real estate advice and a local Realtor in your market should be consulted.  *This in no way implies or creates a client relationship.