Considering RENT TO OWN (LEASE OPTION) ?!%??

Posted on January 7, 2008 by jonbunn

Homes sometimes will rent before they will sell. For those who are willing to take the RISK of renting out their home, this can be a good option. For many who now need to get out of their home quickly there is another option. LEASE TO BUY or sometimes called RENT TO OWN.

This option allows an interested party the option of renting your home while they are able to get their financing in order. The interested party may need time to clean up their credit or gather enough money to afford a down payment. BEFORE you anoint this new found idea as the light at the end of the tunnel it is a vital that you consider both sides of the equation.

1. The tenant may decide they do not want to purchase by the end of the lease term. This could leave you with an extra mortgage payment if you have moved on and a major problem if the value of the home has decreased. I HAVE SEEN THIS HAPPEN.

2. The tenant never fixes the financial issue and cannot even pay the rent. Before you start believing that this is an easy fix, you should check your states laws on EVICTION. It could be a lot harder to evict a tenant than you think.

3. If the market has declined…. and the home is not worth what you originally agreed too the bank will not give the tenant a loan worth its current value. This means that if you had waited and possibly sold it a year ago you would have made more money.

If you are a buyer…. I would strongly encourage you to make the original contract with the seller/ landlord contingent upon having a future appraisal done. If it has gone up in value then the price stays the same as originally set. If you feel it has gone down then the price should reset.

4. MANY TIMES….. I have seen buyers after renting for a while ready to move after finding all the quirks with the home which they will find any where they purchase.

If at all possible, you stand your best chance of this being successful to have a CONTRACTUAL AGREEMENT even if you know the person whom you are working with. Or should I say, ESPECIALLY if you know the person you are working with. Your REALTOR should be able to assist you with this.