Wednesday, 3rd of February 2010 at 09:11:40 AMWhen I first got into Real Estate, Rent to Own and Lease Options weren’t seen very much. Then the great run up housing prices occured and it became an option for those that couldn’t afford to buy.
Well, I think we’re going to see these two methods come back around. Those that are short selling their homes and others that are foreclosing will not be able to get tranditional financing for a period of time. So sellers that really want to sell and buyers that want to buy but can’t can use either of these options.
Rent to Own
A Rent to Own contract is usually 1 to 3 years allowing the buyer to fix their credit in order to obtain financing. There is typically an up-front deposit, a rent and a premium rent (used to increase the deposit for the purchase). The owner collects the rent and the premium each month, the premium is added to the deposit for the purchase. The parties (buyer/renter and the owner) agree to the purchase price prior to contract. This is a contract in which both parties agree to the transfer of ownership. The contract will have language around what will happen if either party fails to close.
Lease Option
Unlike Rent to Own, Lease Option is not an obligation to purchase, but instead a option at a later date to purchase the home. Again, the idea is to provide time to improve credit or possibly save for a deposit allowing for financing to be possible.
Again, there are deposits, rents and premiums used to help the buyer build up for the eventual purchase. Also, the purchase price isn’t necessarily agreed upon in advance, just a method to calculate it in the future. There is also terms in the contract on what happens if either party doesn’t want to purchase/sell the property.
Market
In today’s market, we’re seeing a lot of homeowners that will be facing difficult times ahead and they may not be excited about returning to apartments or rentals. Rent to Own and Lease Option can be possibility to return quickly to a homeownership status.
Post Inspiration/Reference: CleanSlate Blog
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