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
Bankrate’s Real Estate Adviser’s RESPONSE
Vicki,
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 CLARIFICATION: Rent to own is NOT a “last resort” for people finding the right opportunity with LOW down payment & the opportunity to “try out” the home without obligating oneself to a Note and Mortgage. With a legit rent-to-own, you forfeit your option payment should you choose not to exercise your option to purchase.
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 CLARIFICATION: There is NO legal distinction (at least in Florida) between all the terms suggesting rent-to-own such as lease option, lease purchase, etc. In a rent to own, you STILL have an option to purchase spelling out the terms of purchase. Whether you’re renting to own a TV or sofa, you have terms spelled out for purchasing the house, TV or sofa.
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 CLARIFICATION: 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 rent than necessary. It’s reported ONLY 60% of all RTO contracts go through. Who do you think keeps all that rent money OVERPAID? In fact, mortgage underwriting uses a formula when allowing any rent credit. 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?
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 CLARIFICATION: Yes! HUGE benefit….
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 CLARIFICATION: Yes, this is absolutely true. I offer additional (even stronger) suggestions when “checking out” possible RTO opportunities. Yep, many owners are facing foreclosure today and they want to squeeze every dime out of the property before the bank takes it back.
More concerns: 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 CLARIFICATION: 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.
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 CLARIFICATION: I recommend a home warranty to protect the house. Seller pays for warranty and buyer pays the co-pay, usually $45.00 to $75.00 for any protected repair.
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 CLARIFICATION: If you are able to buy at today’s “depressed” prices, understand today’s depressed prices “could be” lower next year. You must plan (and be able) to keep the house for at least 4-5 years. That’s how long I think it’s going to take in Florida (at least) to recover. Unless you get a killer deal and buy well below today’s prices, you might not realize appreciation for a few years.
What do you think of this discussion? What questions do you have about lease-option or rent-to-own? If you can’t sell outright without dumping your price many times, call me. I NEED owners/sellers in 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.
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. You might not get the protection of ownership during the lease term, but you’re into the home with little down and without the fear of foreclosure.
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