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With so many homes for sale, and so few homes to rent available, I am more and more often encountered with the question, " would they be willing to do a rent-to-own?".
I think this is more evidence that homeownership is still in fact the American Dream. It shows that many renters, though not qualified for whatever reason at the moment, inherently do wish to own rather than rent their homes. This scenario however, can be quite complex, and there are some advantages and disadvantages for both parties involved.
For instance, the seller will want some incentive in order to agree to take the property off the market for the duration of the lease agreement. This incentive is usually in the form of a premium tacked on to the purchase price. Why would a buyer want to pay a premium for the house you ask? Well, if there are circumstances which prevent a purchase from qualifying for a mortgage, but they anticipate a change in income, or credit in the future, they may wish to try to start building equity in a home by renting it, and requesting a portion of the rent be credited to them as downpayment money at closing. For instance, if a home is listed for $350,000, perhaps a purchaser would offer $2000/month with $300/month credited back to them at the closing table, enabling them to bring $3600 less in closing costs.
Prior to taking possession, a purchase price is determined. Usually the last 60 days of the lease term, the parties enter into the contract to purchase at the agreed to price.
The landlord/Seller benefits because they know that they have someone who has a vested interest in the property.
Port Jefferson real estate attorney, Margot Garant has structured "purchase option" leases many times for clients. She says, she most often sees the request made if the purchaser has had credit issues in the past or undisclosed income . The transaction is most successful for the parties if the property is vacant.
You may reconsider the entire prospect of rent to own. If you offer a purchase option to a tenant it should be spelled out that their failure to complete it within the time frame of the 1st years lease ends that option and it becomes a lease with no other property interests. I also don't suggest that you offer a portion of each months rent toward an equity position. The last thing you want is a tenant that would be considered to under the eyes of a judge have a building equity position in a home that you then couldn't sell if the market improves without buying out your tenant. Also avoid a first right of refusal as you would have to provide an agreement to the tenant that they could then either accept or reject the option to purchase the home under the same terms and conditions meaning that you still have to find a buyer to then sit back and await the tenants decision. The tenant can offer the home for sale during the term of the lease if you don't spell out that the option to purchase is not assignable and even then they still may try. You can't transfer title as that is a violation of your mortgage and the lender could accelerate (demand payment in full at once) for such a violation. I suggest that you rent it only and not sell an asset at a low point in the market or sell it, one or the other
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