Lease to own home purchases

[phorsenuf]

I'd love to hear any first hand information about this, whether you were the buyer or seller.
The house isn't moving and now with the cold weather here house sales are stagnant. We go back and forth about renting in general but just hate to take that plunge.
I had someone ask me today if we would consider a lease to own. I may feel more comfortable with that verses a straight rental as the "buyer" has something at stake.
I'd love to hear peoples experiences with this, good and bad.

 

[ICF]

Here is what we did....your milage may very.

We had a home up for about 9-10 months and were getting no where with it. The holidays were coming up which likely would have meant we were going to own it for another fews months at least.

We did a lease to own just to see if we would get any interest. It was actually suggested by another real estate agent after we kicked the 1st one to the curb. He was a smaller agent, but was a friend of a friend thing. He typed up the forms for us and actually just asked for $500 when the house finally sold.

We listed it in the Indianapolis Star for a couple of weeks and also on 1 of those newsletters that used to get faxed to businesses. From the fax, we got 2 calls and 1 actually came out the next day to see it and was interested and we went with them.

We wrote the contract with a lease price of $1200 or so a month (I believe our mortgage was $1000 or so) so we were making a couple hundred a month on it as well as paying down our mortgage. The lease to own paperwork also specified a purchase price for the house, $115K I think it was. They paid us $3000 up front which went to the purchase price of the house if they exercised the option. If they didn't, they were outta luck and lost the money. Also, of their $1200 / mo payment I think $100 or so went towards the puchase price. This meant that after 1 year, they had paid $4200 towards the $115K purchase price (100 / mo x 12month + $3000) so they could buy the house with a mortgage of $110,800.

If, after the 1st year, they did not yet want to exercise the option....they could renew it for $1000. That $1K also went to the purchase price of the house. Their payment went up another $100 with $50 going towards the purchase price. They ended up renewing for a 2nd year and they finally purchased it at the end of year 2 (more or less). They had paid in $4000 in upfront monies and another $3000 in from the monthly payments which helped them get the $115K house for only $108K.

The couple that purchased the house claimed that they didn't have good credit and couldn't get the mortage due to that. They paid on time (more or less) each month for the 2 years and were very nice people. The odd thing was, they always paid in cash...might have been best I didn't know where it came from, so when they went to purchase they needed some proof from me that they had been making payments.

Our contract was written such that they were responsible for any day to day repairs (including even big things like the furnance) and I still carried home owners insurance on it if anything happened to the actual house.

Now, I'm guessing on the east coast your house values are double what ours were back 10 years ago so the $$'s involved are probably much higher for you.

It worked well for us, and we were only 15 mins or so from them so getting the payment and checking up on the house were easy for us to do.

 

[phorsenuf]

Thanks for the reply. Sounds like it went nice and smooth for you.
Did you have to put he down payment or extra rental payments into escrow?

 

[C.Ann]

My mom did this with a home that she owned up in Lake Champlain.. The contract was a lease to own for "X" number of years - with a final balloon type payment at the end of that time frame to finish off the deal.. (I think it was around $25,000..)

At the end there was a bit of a problem for awhile - the guy hemmed and hawed and kept coming up with excuses - but once my mom had her attorney get it contact with him he coughed the money up pretty quickly..

This is just "my" thinking.. If I went into a home with a "lease to own" contract and spent a good number of years there, I would definitely be prepared to make that balloon payment at the end because I wouldn't want to lose all the money I had previously invested..

If you go this route, just make sure you have a good attorney - with a contract that spells out everything right to the letter..

Good luck!

 

[ICF]

Did you have to put he down payment or extra rental payments into escrow?

No. The reason being, all they really were doing was getting a reduced mortgage amount and the money was mine since if they didn't get the house, they didn't get the money (or credit) back in anyway.

 

[momrek06]

I also have a home in the East, MA., and we had it on the market 6 months. As September was getting closer and closer and I knew winter was on New England's doorstep. DH & I had to make some decisions.
Either take if off the market and winterize it OR keep it on the market and keep oil in the tank and the heat on all winter OR rent the house out. Spoke at length to our listing broker, he said the contract was actually up and we could go ahead and rent it out.
We called a property management firm and in 24 hours the house was rented to a lovely couple for exactly what our mortgage is.
As far as a lease to own, truthfully, DH & I are really thinking of keeping this as a rental. We did not want to get into a contract on our house with a lease to own as we feel in a year or two the market will rebound.
The couple renting is paying all the bills, water, oil, elec, rent etc. The only bill we pay is homeowners.
So, for us, just renting has worked out awesome.

 

[phorsenuf]

I also have a home in the East, MA., and we had it on the market 6 months. As September was getting closer and closer and I knew winter was on New England's doorstep. DH & I had to make some decisions.
Either take if off the market and winterize it OR keep it on the market and keep oil in the tank and the heat on all winter OR rent the house out. Spoke at length to our listing broker, he said the contract was actually up and we could go ahead and rent it out.
We called a property management firm and in 24 hours the house was rented to a lovely couple for exactly what our mortgage is.
As far as a lease to own, truthfully, DH & I are really thinking of keeping this as a rental. We did not want to get into a contract on our house with a lease to own as we feel in a year or two the market will rebound.
The couple renting is paying all the bills, water, oil, elec, rent etc. The only bill we pay is homeowners.
So, for us, just renting has worked out awesome.

I'm so glad that worked out for you! We were all set to rent and then hubby decided he didn't want to. But, with us moving up on a year of being apart its time to make a decision.
(Sorry I didn't answer your pm before...time got away and I spaced. Bad me.)

 

[momrek06]

I'm so glad that worked out for you! We were all set to rent and then hubby decided he didn't want to. But, with us moving up on a year of being apart its time to make a decision.
(Sorry I didn't answer your pm before...time got away and I spaced. Bad me.)

No problem on the PM, phors, I understand completely.

You know it actually was YOU that got me thinking property management and when I tossed that idea to DH he said "no"...and he said no to also winterizing the house. He wanted us to keep the house listed and oil in the tank and run the heat at 50 all winter.
Well I was so tired of paying the mortgage on an empty house that was not selling and also paying rent here in CA.
When I went home (alone) to MA in August (DH was coming later in the month)...I rolled up my sleeves and got busy, spoke to my listing agent, he said the listing had expired and was hoping we would re-sign...told him I was leaning towards renting...Broker said he would not stand in my way BUT he was hoping in reality I would just re-sign with him.
Called a local property management firm. They came out, took a listing and informed me that they had quite a few families that would be very interested in renting. We got the paperwork going and mind you, I am calling "doubting DH" back here in CA, updating him. Well, DH finally decided to allow renters to come in. It has been awesome having the property management firm...they handle everything.

So when we got our first rent check, DH looked at me and smiled and said, "I am so glad we rented the house". WhatevAH, I said....

Phors, it really is HUGE having this off our backs. We will either rent it again next year OR see if the market has rebounded and re-list it.

 

[phorsenuf]

I talked with hubby tonight and he really liked the idea. I'm going to set up an appointment with the couple that is interested and have them come by and check out the house. They loved the outside and checked out the pictures online and really liked it. If we decide to go this route then we'll get up with a real estate lawyer and write it up.
I sure hope it works out. If it doesn't with them then I'll advertise it and see what happens.

 

[barkley]

i don't know if property managment companies will handle lease to owns, but if they do i'de strongly suggest using one with any kind of rental situation-let me share how using one just SAVED a friend's hide.

she recently inherited her grandfather's home and planned to move in. grandpa had been in a nursing home when he passed but when he moved there he put the home in the hands of a property managment company. part of the contract stated that the property managment company had to guarantee that home was maintained and would always be restored (upon each tenant move out) to the state it had been in upon the inspection done by owner/p.m. company upon signing (minus normal wear/tear). they were mandated to do regular inspections to ensure that renters complied.

friend wanted to move into house but the current lease did'nt expire until september so she had several months to wait (year lease). she asks p.m. company if they've been doing inspections and asks how the home is doing (older home-she figured she was going to have to do reno's and wanted a heads up). company assures her it was fine upon last move in (less than 6 months earlier) and that the renters are 'just the nicest people, always pay on time-very understanding about lease renewal'.

HERE'S THE SCARY PART-a couple of months before the lease is up the police get a tip to check the home out-to walk into the living room the place looked great, so apparantly did the kitchen and the first bedroom BUT in the back bedrooms and part of a garage the renters had decided to embark on their own canibus growing adventure but apparantly were'nt too skilled at hooking up the watering apparatus so it leaked, and leaked, and leaked. all the old hardwood floors (under carpet) are now totaly warped and rotted. the subfloor under the tile/linolium is shot. the ceilings have to be replaced because of the grow lights they jimmy rigged (electrical has to be upgraded now because repairs are required where they spliced in), they are still looking into weather they have to do mold abatement for the drywall. we are talking tens upon tens of thousands of dollars.

grandpa had homeowner's insurance (and his granddaughter kept it up) but they pointed out that damages to to illegal activities are'nt nescessarily covered. the couple of thousand in security deposit won't come near to covering the cost.

the saving factor was that contract with the p.m. company-they are bound to return it to the shape they got it in. repairs have started on that company's dime.

grandpa apparantly paid a bit more than the norm to get a contract with this provision but as you can see it's been well worth it (not saying all renters are going to do illegal activities, but when i read/hear about how many people faced with losing their homes are now trashing them i can't help but be concerned that if someone leased to own and has what they perceive to be maybe 10,000 invested over time towards purchase but their ability to buy goes south if they might not resort to the same.

 

[momrek06]

I talked with hubby tonight and he really liked the idea. I'm going to set up an appointment with the couple that is interested and have them come by and check out the house. They loved the outside and checked out the pictures online and really liked it. If we decide to go this route then we'll get up with a real estate lawyer and write it up.
I sure hope it works out. If it doesn't with them then I'll advertise it and see what happens.

Keep us posted, Phors, and let us know how that all works out. I really hope you can get this squared up and go and be with DH. I noticed your avvie states PALM HARBOR, FL....that is where my parents live all winter. We visit often. Lovely area. Allot to do, allot going on, allot of shopping. AND only a mere 80 miles or so to WDW!!!

i don't know if property managment companies will handle lease to owns, but if they do i'de strongly suggest using one with any kind of rental situation-let me share how using one just SAVED a friend's hide.

she recently inherited her grandfather's home and planned to move in. grandpa had been in a nursing home when he passed but when he moved there he put the home in the hands of a property managment company. part of the contract stated that the property managment company had to guarantee that home was maintained and would always be restored (upon each tenant move out) to the state it had been in upon the inspection done by owner/p.m. company upon signing (minus normal wear/tear). they were mandated to do regular inspections to ensure that renters complied.

friend wanted to move into house but the current lease did'nt expire until september so she had several months to wait (year lease). she asks p.m. company if they've been doing inspections and asks how the home is doing (older home-she figured she was going to have to do reno's and wanted a heads up). company assures her it was fine upon last move in (less than 6 months earlier) and that the renters are 'just the nicest people, always pay on time-very understanding about lease renewal'.

HERE'S THE SCARY PART-a couple of months before the lease is up the police get a tip to check the home out-to walk into the living room the place looked great, so apparantly did the kitchen and the first bedroom BUT in the back bedrooms and part of a garage the renters had decided to embark on their own canibus growing adventure but apparantly were'nt too skilled at hooking up the watering apparatus so it leaked, and leaked, and leaked. all the old hardwood floors (under carpet) are now totaly warped and rotted. the subfloor under the tile/linolium is shot. the ceilings have to be replaced because of the grow lights they jimmy rigged (electrical has to be upgraded now because repairs are required where they spliced in), they are still looking into weather they have to do mold abatement for the drywall. we are talking tens upon tens of thousands of dollars.

grandpa had homeowner's insurance (and his granddaughter kept it up) but they pointed out that damages to to illegal activities are'nt nescessarily covered. the couple of thousand in security deposit won't come near to covering the cost.

the saving factor was that contract with the p.m. company-they are bound to return it to the shape they got it in. repairs have started on that company's dime.

grandpa apparantly paid a bit more than the norm to get a contract with this provision but as you can see it's been well worth it (not saying all renters are going to do illegal activities, but when i read/hear about how many people faced with losing their homes are now trashing them i can't help but be concerned that if someone leased to own and has what they perceive to be maybe 10,000 invested over time towards purchase but their ability to buy goes south if they might not resort to the same.

YIKES, what a mess, barkley.

THANK GOODNESS, they indeed did have a PM company. We reviewed every single line of our contract with the PM...line by line...to make sure WE are protected.
DH took pictures of every single room the last day we were there. House was completely empty.
Our PM told us (and it is written in the contract) that they do surprise visits. This was told to the renters. The PM will just pick one random day, go up and ring the door bell and do a walk through. Also, I lived in that town for 15 years...we have a ton of friends keeping a watchful eye on the house.
If Phors, goes in this direction, she will be so happy. The market is so bad now all over. This is the next best option, hire a PM and let them manage the house for you.

 

[Jennasis]

We did a lease to own with our farm. Worked out well. We leased for two years while we built up our business and then bought it in 05.

 

[momrek06]

phors, any updates on the NH house?

 

[phorsenuf]

phors, any updates on the NH house?

Thanks for asking Mom. We terminated our contract with our Realtor as we were not happy with her. I can't relist with another agency until the 16th so in the meantime I am doing for sale by owner. I actually have someone coming to see the place tomorrow who has been eyeballing it for some time and since we don't have a commission to pay anymore we have more room to work with to get withing his price range without asking a huge hit.
I'm hoping.

 

[kilee]

My MIL had her house on the market for almost 2 years after buying a different house. After no luck w/ selling it and a loss of income she decided to rent it, otherwise it was going into foreclosure. Her first tenants moved in and paid the first months rent only. She had to pay to get them evicted 4 months later, thankfully they did no damage.

She decided to try again, and got who she thought was a "nice family". W/ this family she got into some "rent to own" type situation but I don't know all the details. Same thing, they'd pay 1 month and then not again for 2 months. After playing this game w/ them for 8 months she had them evicted. Only they DESTROYED the place. They removed all the light fixtures, the cabinets, they put holes in all the walls, they dumped cat liter pans all over the house and then ripped open full garbage bags and scattered them throughout the house. They must of had pets because the floors were just destroyed w/ pee stains and the stench....OMG!!!

I cannot even begin to describe the mess. Her homeowners would not cover it. The tenants attorney found all types of legal loopholes in her lease and her case got thrown out. I don't know all the legal details. This had to due w/ the way her lease to own contract was written and essentially they were "just remodeling" the home they were going to purchase"

My husband felt bad for his mom, and decided to mix business and family (something I was leary of). He and I went in and cleaned the place up and gutted it-- can I tell you we filled one 30 yard dumpster to the top w/ just their garbage they left in the place. We ended up remodeling the home (w/ a home equity she took out) and rented it from her for a while. I just know she had nothing but nightmares.

However, I am grateful for people who rent out their homes. We are renters and I love living in a single family house. We no longer rent from MIL (the house burned down last year-- which is a whole other story) but we do rent a nice little 3 bedroom home. I don't know how I'd handle going back to an apartment.

I think as the landlord you just have to be very careful w/ your insurance coverage and leases. Make sure they're legal and they cover you fully.