Lease to Own

[jedijill]

I have a question about how "lease to own" works in regards to homes. My landlord casually mentioned a couple of months ago that he and his wife plan to sell the home I just moved into in about 5 years when they retire. That got me thinking (always dangerous!). I would like to think about buying another home in a couple of years and this house is certainly a candidate for the area/type of home I would like to eventually buy.

I also own a home in Missouri that I was unable to sell when I moved for my job. I am renting it out and my property management company told me that they will handle lease to own arrangements. I will probably talk to them as my current tenant gets closer to the end of the lease to find out how the process works.

I'm just trying to get a general understanding of pros/cons of this kind of arrangement.

Thanks for any help!

Jill in CO

 

[mistysue]

You can do it different ways, but basically you get an agreement that a percentage of the rent goes toward the purchase price. Sometimes there is also a downpayment. My dad did one of these as a landlord trying to sell. He had a $20,000 downpayment and then he counted 100% of the rent toward the selling price, but they had to buy within 5 years.

It has the same downside as renting... in my dad's case the tenant gutted EVERYTHING, knocked down walls, peeled drywall apart, tore up floors, and then it took 5 months to kick them out after they stopped paying rent. It cost him about $10,000 more than he got out of the situation. He has a judgement against them where they have to pay $100/month but they keep moving and have only paid a couple times in the last 2 years.

 

[Cheshire Figment]

As a general rule a lease with option to purchase has you paying a higher than market rent. The purchase amount is locked in at that time. A negotiated percentage of the rent is treated as the down payment. By the end of the term you need to have arranged financing and the amounts of the purchase price plus down payment are known. It is a good idea that before signing this lease that it be reviewed by an attorney, preferably one who specializes in Real Estate.

 

[scrapquitler]

I have a question about how "lease to own" works in regards to homes. My landlord casually mentioned a couple of months ago that he and his wife plan to sell the home I just moved into in about 5 years when they retire. That got me thinking (always dangerous!). I would like to think about buying another home in a couple of years and this house is certainly a candidate for the area/type of home I would like to eventually buy.

I also own a home in Missouri that I was unable to sell when I moved for my job. I am renting it out and my property management company told me that they will handle lease to own arrangements. I will probably talk to them as my current tenant gets closer to the end of the lease to find out how the process works.

I'm just trying to get a general understanding of pros/cons of this kind of arrangement.

Thanks for any help!

Jill in CO

I would NOT EVEN CONSIDER lease to own unless I first contacted an attorney and had him write or approve the paperwork. I would also make sure I understood 110% EXACTLY what I was getting into. This goes for me being the buyer or the seller.

I hear so many stories of this not going well....

 

[jedijill]

Thanks. I would never enter a real estate/business transaction without an attorney. I was more wondering about the pros/cons of this type of business arrangement.

Thanks

Jill in CO

 

[nicj8506]

We did this when we purchased our home. We were working with our realtor and she said her brother was selling a home that he would be willing to rent till we could buy it. So we looked at it and loved it. When we started the process, we filled out paper work as if we were buying the house, and put the date of closing a year after we moved in. We got an apprasail on the house, and had a inspection like we would if we purchased it right than. The house price is set in stone, but we did comps on similar houses and we actually got a really good deal on it. 100 dollars of rent from each month went towards the down payment, as well as any other money we wanted to put towards it. Oour rent is 800 a month, for a 3 bedroom, 1 1/2 bath, 1200 square foot house. We rented for 2 and half years, and actually are going to close in January on it. Our landlord let us do whatever we wanted to the house while renting. We changed out light fixtures, added hardware on the kitchen cabinets, took out some old trees and bushes. They basically said it is our house, we can do what we want.
We were so lucky to find them, otherwise we would have been in an apartment, or renting a small house, since 800 would not get us this much space if it wasn't for them.
It has been a good experience for us, and are so thankful we found someone to work with us.

 

[jedijill]

We did this when we purchased our home. We were working with our realtor and she said her brother was selling a home that he would be willing to rent till we could buy it. So we looked at it and loved it. When we started the process, we filled out paper work as if we were buying the house, and put the date of closing a year after we moved in. We got an apprasail on the house, and had a inspection like we would if we purchased it right than. The house price is set in stone, but we did comps on similar houses and we actually got a really good deal on it. 100 dollars of rent from each month went towards the down payment, as well as any other money we wanted to put towards it. Oour rent is 800 a month, for a 3 bedroom, 1 1/2 bath, 1200 square foot house. We rented for 2 and half years, and actually are going to close in January on it. Our landlord let us do whatever we wanted to the house while renting. We changed out light fixtures, added hardware on the kitchen cabinets, took out some old trees and bushes. They basically said it is our house, we can do what we want.
We were so lucky to find them, otherwise we would have been in an apartment, or renting a small house, since 800 would not get us this much space if it wasn't for them.
It has been a good experience for us, and are so thankful we found someone to work with us.

Thanks for the feedback! Glad it worked well for you.

Jill

 

[DisneyBill]

We did this when we purchased our home. We were working with our realtor and she said her brother was selling a home that he would be willing to rent till we could buy it. So we looked at it and loved it. When we started the process, we filled out paper work as if we were buying the house, and put the date of closing a year after we moved in. We got an apprasail on the house, and had a inspection like we would if we purchased it right than. The house price is set in stone, but we did comps on similar houses and we actually got a really good deal on it. 100 dollars of rent from each month went towards the down payment, as well as any other money we wanted to put towards it. Oour rent is 800 a month, for a 3 bedroom, 1 1/2 bath, 1200 square foot house. We rented for 2 and half years, and actually are going to close in January on it. Our landlord let us do whatever we wanted to the house while renting. We changed out light fixtures, added hardware on the kitchen cabinets, took out some old trees and bushes. They basically said it is our house, we can do what we want.
We were so lucky to find them, otherwise we would have been in an apartment, or renting a small house, since 800 would not get us this much space if it wasn't for them.
It has been a good experience for us, and are so thankful we found someone to work with us.

Yes glad that one worked out for you. The flip side of this situation is that the seller, if they have a mortgage, gets foreclosed on and you lose everything. Or if the seller has no mortgage, gets sued, loses the house, you lose everything you've put in the deal.

As a seller, you're better off with a lease purchase option than seller financing. If tenant fails to perform by not paying rent, then you evict rather than foreclose.

Me, neither would be an option if at all avoidable.

 

[nicj8506]

Luckily they have no mortgage so we don't have to worry about the house going in foreclosure. It is a win-win for both of us. They get extra income, we get a nice house to live in while we get our credit and finances together.