Residential Property Management/Rent to Own Properties

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Question
We live in Andover MN 55304. We cannot find any apartment or townhouse to rent. But we saw some rent-to-own properties in market and asked about our credit score. What kind of property can rent to own in market. Any luxury one or higher value home in there. We want to live for a while and search for a nice home.

Answer
There are a lot of misconceptions about rent-to-own deals and there are lots of ways to do them.  It all depends on the seller and how they want to structure the sale.  Here are 2 common examples.
1.  Lease-to-own (or rent-to-own):  Buyer signs a rent-to-own agreement, pays rent plus a little extra each month that is applied to the down payment when the lease expires and the sale is to take place.  If the sale does not take place, the seller keeps some or all the extra paid toward the down payment.
2.  Lease-option:  Buyer signs an option agreement, pays rent plus monthly installments on an OPTION FEE that allows the buyer the OPTION to purchase the property at a pre-determined time in the future.  Usually none of the option fee is applied to the down payment.  If the option is not exercised (buyer decides not to buy), in most cases ALL of the option fee is kept by the seller.
In neither example does the tenant begin to accumulate ownership in the property during the rental period.
Very few lease-to-own or lease-option deals ever result in a sale.  The most common reasons I see them fall out are:
- Buyer decides he doesn't like the property after living in it awhile
- Buyer is unable to qualify for financing when the lease expires
- The purchase price agreed upon at the beginning of the lease no longer reflects the market value of the property
- The purchase price is agreed to at the beginning of the lease, but is subject to being adjusted during the lease period according to the value of a mutually agreed-to index.  If real estate prices go up during the lease period, the index may adjust the price to a level that is no longer affordable for the buyer.
Although some sellers offer financing, most don't and the buyer is required to find a mortgage on their own.  For this reason, many sellers won't enter into a rent-to-own or lease-option agreement unless the tenant passes the same qualifying criteria that a bank would require for a standard mortgage.  For the most part, they truly want to sell and don't want to have to re-start the rent-to-own process all over again with a new tenant.  HOWEVER... there are sellers that aren't strongly motivated to sell and have no problem entering into an agreement with an unqualified tenant.  If the tenant fails to find a mortgage, the seller pockets the option money and finds another tenant.
I this answers your question.

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John Souerbry

Expertise

Property buy/sell decisions; market rent analysis; cost control/profit improvement; property management procedures; real estate portfolio management; selling real estate held by estates in probate or trust.

Experience

Over seven years specializing in services to investors and estates.

Organizations
National Association of REALTORS(R), California Association of REALTORS(R), Silicon Valley Association of REALTORS(R), Bay East Association of REALTORS(R)

Publications
My web site blog includes current market information and my "Real Estate Jargon" series that explains sometimes-confusing real estate terminology.

Education/Credentials
BS in Business Administration; MBA in Global Management

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