Rent to own: Three words in the English language that would seem harmless enough… right? Understandably, you hear the phrase "rent to own" and imagine yourself financially tapped out, and in a dimly lit store with dingy carpet, signing an agreement to shell out $8 a week, until you’ve finally paid $2,300 to buy a sofa a retails for $700!
“Rent To Own” is nothing like that when it comes to selling a house.
Renting to own houses, or “lease-optioning” a house, as they say in the real estate business, is an entirely different business matter. Renting to own a house can be a dream come true… for both the seller and the buyer
How It Ideally Works
You don’t rent-to-sell your house to become rich. You do it to avoid becoming poor. If you’re relocating for work, scaling up to a better house, or moving to adapt to some other life change and the market is preventing you from selling your house, then it’s something to consider. Unless you enjoy the prospect of paying two mortgages every month indefinitely, or being stuck… Maybe with little to no equity which would force you to bring cash to the table if selling with an agent…So, this is one way of minimizing the financial damage.
Let’s say you find someone who is interested in buying your house. They have a good steady job…But, they can’t do it because their credit isn’t good enough.
This is how a lease option would work:
1. After securing the go-ahead and before moving in, your potential buyer will provide a healthy, nonrefundable deposit to go toward the down payment of the house -- typically, 1 to 3 percent of the purchase price.
2. The buyer rents your house for a period of time -- usually two-three years -- and during that period; they pay an above average monthly rent. A portion of the rent also goes toward the eventual down payment of your house.
3. After two –three years, according to your agreement, your renter has the option to buy the home, with the down payment money going toward the purchase price, and since they’ve put a considerable amount toward buying it, they generally choose that option. If they don’t, the seller gets to keep all the down payment money.
4. Rent-to-own can be worth looking into for “would”-be buyers who simply can’t wrangle a mortgage the traditional way. Typically, that’s because you either lack enough cash for a down payment or your credit score isn’t strong enough to be approved for a mortgage (or both). With a rent-to-own agreement, you get more time to boost your credit and save up, all while getting a head start on building some equity.
Seller Benefits to Lease-owning Your House
Long-term tenant with a big stake in the game. Responsible for taking care of the property, along with the nonrefundable option fee helps reduce a lot of their risk if the buyer thinks of walking.
Higher sales price and rent for the home upfront which insures it will sell due to no equity left. Even in a shaky market, because the tenant/buyer gets to start building equity from the get-go.
Huge market of buyers all the time. There is never a shortage of people who want to purchase homes, but for whatever reason are unable to do so in a conventional manner.
No realtor commissions. Seller/ Landlord can save the usual 5% to 6% commissions.
Higher quality of tenant. Because the tenant is the future owner of the house and has been screened accordingly, there is little concern for damage to the property.
Less vacancy time. The lease/option attracts a greater number of interested buyers who are looking to move in quickly.
Positive cash flow. Seller/ Landlord will receive a monthly cash flow from the tenant/buyer, rather than having the house sit vacant with a mortgage payment due.
Seller retains tax benefits of rental property.Tax benefits for seller to enjoy as owner of investment property (seller should check with your accountant for specifics).
We'll be glad to walk you through every step of the process. When you contact us, we’ll provide you with a no-cost, no obligation consultation to determine if this option is best for you and how we can help you implement and structure the entire program tailored for your specific needs.
You probably have questions about putting this program into action? E-mail me at our Contact Us page with any questions and I’ll get back to you right away… Or feel free to call me directly at (508) 859-1900 if you’re ready to discuss your situation today!