Florida rent-to-own opportunities offer BUYERS and SELLERS the opportunity to get what each wants without genuflecting to the banks!
You CAN Rent-To-Own Your New Home!
That’s right, I said it.
Just because prices are 50% of what they were in 2006, who knows where the bottom is.
Who knows if the house you buy today will appreciate (go up) in value as you expect (and hope)?
When I hear “Real Estate Advisers” not answer a letter-writer’s question fairly, it’s disturbing. At www.bankrate.com, a lady named Vicki asked the following question with the following response from the Bankrate’s real estate adviser.
Question: I see many rent-to-own home offers and Web sites now. But are rent-to-owns actually safe to buy? For many buyers and sellers, I get the feeling this is a last resort. — Vicki
Click Read More below now to get Bankrate’s real estate expert’s response and my “additions”. Hint: rent-to-own, lease-option & lease-purchases are NOT just for people with damaged credit.
OWNER FINANCING BENEFITS BUYERS AND SELLERS
What you see below is the response to a rent-to-own question from a real estate “expert” with Bankrate. Unfortunately, I must disagree often with Bankrate’s expert:
Vicki,
Bankrate Response: With a challenging housing market still prevailing in many parts of the U.S. and tighter mortgage restrictions, rent-to-own has indeed become a viable last resort for many owners and would-be buyers.Mike’s Response: Rent to own is NOT a “last resort” for people finding the right opportunity with a LOW down payment & the opportunity to “try out” the home without obligating oneself to a Note and Mortgage. Tell me, how would you like to be enjoying your home today as if it’s your own but with the ability NOT to exercise your option to purchase if your house drops in value? 7 out of 10 people with a mortgage today owe more than their homes are worth. They would LOVE to be able to forfeit their option payment to be able to walk away with no no deficiency judgment and debt collectors chasing them for up to 20 years in Florida. Short answer: No, Vicki, “rent-to-own” is NOT just some “last resort” strategy.
Bankrate Response: First, to avoid confusion, let’s examine the difference between a rent-to-own home and lease-option deal. In a rent-to-own, also called “rent-to-buy” or “lease-purchase,” the agreement calls for the renter to purchase the house by a set time, which is typically 36 months hence.
Mike’s Response: Yes, rent-to-own goes by different terms such as lease-option, lease-purchase, lease-to-buy, etc. The point is, as Bankrate mentions, is that the WRITTEN agreement reviewed by YOUR attorney clearly spells out terms, future buy-out price & lease term (BR mentions 36 months, though I see mostly 13-15 month terms). 36 months is THREE YEARS. I can’t think of anyone who’s situation is so screwed up he/she needs 3 years. My experience is that the landlords/sellers who demand you sign a 3-year lease are looking to rip you off. That’s MY experience. The lease term ONLY should conservatively reflect your situation. If you are new on the job and the mortgage banker requires 1-year work experience, then you need at least one year lease term, right? If you have 3 collections valued (with no negotiated LOWER payoff) at $3,000, then how long will it take you to come up with $3,000? You see, when thinking of lease term you need to think conservatively. You cannot think you will offer the 3 debt collectors 25% and they’ll accept. You don’t know that. BTW, (if) you settle you MUST get debt collectors to agree in writing to delete or report “pays as agreed.” If not, you will hand over your money and watch in horror as your scores DROP. As strange as this sounds, you paid off bad credit and your scores dropped.
By contrast, in a lease-option, the lease agreement contains a provision giving the renter the option to purchase the place at some point. Both typically require the renter/buyer to pay additional monthly rent premiums to “buy down” the price of the home in addition to paying an upfront sum, ranging from 3 percent to 10 percent of the purchase price as a down payment of sorts. Most such agreements, but certainly not all, specify a locked-in price.
Mike’s Response: In many rent to own opportunities, the owner/landlord offers a “rent credit” credited toward purchase. Most rent credit offers are a scam, enabling unscrupulous landlords/owners to COLLECT more than market rent, disguised as an “equity-builder” for the tenant-buyer. It’s reported ONLY 60% of all RTO contracts turn to sales contracts at lease term. Who do you think keeps all that EXTRA rent money? In fact, mortgage underwriting uses a formula disallowing any monthly rent money that is ABOVE market rent. For the 40% of RTO contracts that make it to term and ownership, any INFLATED rent credit landlord/owner advertised is not allowed and pocketed by owner/landlord. Big surprise, huh?
Bankrate Response: Let’s start with the positives of rent-to-own. You are not frittering away money on rent, and you get to take the house for a prolonged “test drive” to find out if its design, road infrastructure, neighborhood, schools and area resources are adequate for your needs. You also have the flexibility to walk away at the end of the term.
Mike’s Response: Yes, I concur! HUGE benefit….
Bankrate Response: On the flip side, some seller/landlords, particularly in lease-option deals, don’t disclose they are going through foreclosures and their renter/buyers can end up losing their fees and premiums as well as the roof above their heads as a result. To avoid that, contact your local tax assessors’ office, which may have lists of local foreclosed homes or try Foreclosure.com, which has relatively up-to-date, state-by-state listings of preforeclosures and foreclosures.
Mike’s Response: Yes, unfortunately this is 100% true of some landlords/sellers. Some unscrupulous people stick rent-to-own signs, flyers & advertisements all over the place. They get someone to hand them $4-$5,000 in option money and monthly rent payment$.
All the while, these owner/landlords are not making their mortgage payment – they’re pocketing the monthly rent as the bank forecloses & kicks the tenant-buyers out of the house…eventually. Horrible, isn’t it?
Bankrate Response: Rent-to-own and lease-to-own tenants don’t have the protections that traditional buyers do, should they fall behind in payments. If evicted, you would stand to lose any fees and extra rent premiums you’ve paid over the years. And of course, at the end of the rent-to-own period, the buyer/renter will still need to qualify for a mortgage. If he or she can’t, they may lose their investments. To avoid this possibility, make sure to ask for a contingency clause in the deal calling for the return of a large percentage of your fees and rent premiums if you can’t qualify for a loan.
Mike’s Response: In SOME cases this is true about protection differences b/t owning outright and renting to own. However, you don’t stand to lose as much as someone who RENTS the house from the bank on a mortgage. What do I mean? Doesn’t everyone with a mortgage simply pay rent to the bank each month? What if you stop paying the bank? That’s right, the bank will foreclose and evict you. Good suggestion to add a contingency clause re: financing. Keep in mind, though, this clause must be equitable to both parties. I’ve worked with too many LAZY buyers who desperately wanted home ownership only to do NOTHING to bank qualify once they grabbed the keys. Clearly, that’s not fair to the property owner who’s upheld his end of the deal.
Bankrate Response: And many rent-to-own buyers who agreed to a set price a few years ago found their homes substantially devalued by the time they were set to buy and couldn’t get financing to cover the difference. Or if they did get financing, buyers with still-damaged credit found their terms less affordable than what the sellers were paying monthly. Other potential issues you should address contractually include who pays for repairs at the house and what happens if the owner dies. Be sure to get all the details explicitly spelled out in a custom contract. Don’t use a standard form.
Mike’s Response: BR makes 3 great points. Let me tell you, both points have EASY answers of GREAT benefit to the BUYER. First, the agreed-upon future buyout price. BR asks what happens if a tenant-buyer cannot get financing at the end of the lease term and/or the house has dropped in value from what both parties agreed at lease inception.
Point #1 (tenant cannot get financed) – In the OPTION Agreement, have your attorney insert a clause essentially stating that provided the tenant proactively works to resolve the issue(s) preventing tenant-buyer from getting financing (i.e. credit), landlord-seller agrees to extend lease term with no increases or adjustments to term to allow tenant-buyer to get financed. Now, this clause MUST be more specific regarding responsibility of tenant-buyer. TB cannot wait until 11th month of a 12-month lease to begin working on his/her credit. There needs to CLEAR language addressing issue and what should be done from day 1 to be considered for an extension. Easy and fair.
Point #2 (house has dropped in value) – Again, this is an easy one. An appraisal will prove to the landlord-seller the property is not worth the option price. It doesn’t matter to what price both parties agreed. A mortgage banker will NOT lend on the greater of the offer price or appraisal. Re-negotiate the price. What options does the seller have? Does he (seller) think he can sell at an inflated price to some other buyer? Does he (seller) think he can get a different appraiser to give him the number he needs? He will realize he should work with the buyer he has to make it work.
Point #3 (who pays for repairs and what happens if the owner dies) – Easy! Involve attorneys at the beginning. For repairs, this is what I recommend to buyers and sellers: Sellers pays premium for home warranty (~$400 /year) to protect the house. Buyer pays the co-pay (~$45.00 to $75.00) for any need repair covered under warranty. For any “bigger” repair, home owner’s hazard insurance covers and SELLER will be responsible for deductible…(if) NOT determined to be tenant-buyer’s fault. If TB is found to cause repair necessitating insurance filing, TB pays deductible.
Bankrate Response: If you can, buy the home with a conventional mortgage at today’s depressed prices. If your credit rating is getting in the way, then take concrete steps immediately after signing the rent-to-own agreement to repair your rating by the time you’re set to buy. Otherwise you’ll be in the same position you are now.
Good luck!
Mike’s Response: If you are able to buy at today’s “depressed” prices, that gives a buyer the choice. With depressed house prices, that’s WHEN I want to lease-option a house. If the property’s value nose-dives during the option period, I walk away from the house (and my meager option payment) or negotiate a lower buy-out price. This is WHY the lease-option is a powerful buying strategy. As you can see, the lease-option also is a powerful selling strategy. LOTS of lease-option buyers today who need time to improve their “file” in order to get financed. They’re good people with money and regard for property; they need time. They want to “own,” not rent.
Okay, what do you think of this back and forth on the rent-to-own (aka “lease-option,” “lease-purchase”) topic?
What questions do you have about lease-option or rent-to-own? If you can’t sell the traditional way without dropping your asking price many times, call me.
I NEED sellers in the Orlando, Tampa, Bradenton, Sarasota areas who will offer TERMS (owner financing, RTO, lease-option) to buyers. Right now, I receive 3-4 applications PER day from people wanting to rent to own their new home. I need houses! Please leave a comment below and then call me.
PLEASE scroll down below a bit to leave me a comment, ask a question or share an experience you’ve had with LEASE OPTIONS. If you or someone you know wants to buy or sell a house in or around Sarasota, please contact me now. Whether traditional or creative buying or selling, I have proven experience. I didn’t just buy an ebook or attend a one-day workshop to learn the nuts and bolts of lease options.
Florida rent-to-own (or Florida lease-option) home buying opportunities might be BETTER than buying with a mortgage if you want to try-out the home and fear prices might still be going down. In today’s turbulent (albeit DOWN) housing, I personally would choose to “buy” a house using the lease-option over the conventional mortgage. Seriously, why wouldn’t you? Oh, you might say the mortgage interest, property taxes & insurance deductions are too great to give up. Negotiate the deduction on the lease term. It’s no big deal. Mr. Seller, carefully weigh the risk of selling outright today versus renting to own. Mr. Buyer, if you have the ability to buy today with a mortgage versus lease-optioning, are you prepared to stay put for 4-5 years? You might need 4-5 years to realize equity as prices continue falling…even when you buy today.
