Submitted by: Dianne Maquilan
A rent to own (differs as compared with a lease to purchase, a lease to purchase adheres both to the sale where in a rent to own the buyer has the option however the owner doesn’t) is the compact form of the exact term Lease Having the Option to Purchase. It is a form of agreement applied in both residential and commercial real-estate.
The agreement is usually between 2 parties: the tenant (also referred to as the lessee), and then the house owner (lessor), who owns or even has the right to lease or dispose the property.
As the term lease having an option to purchase states that there are 2 events along with is not mandatory. In order to obtain a valid option the tenant/buyer must grant significant consideration for the option. Basically invest in the right to purchase later on at an agreed amount.
The rent to own only binds the owner to sell; it will not tie the client to purchase. That is exactly why consideration is essential. Valuable consideration is about 1-3% however there is no rule.
The basic principles are:
1. Customer buys the option, the parties agree with what the price of the option is.
2. The parties approve a purchase price. It could be determined that the amount will be the considered value once the option is applied.
3. The duration in residential real-estate is commonly 1-3 years and might set out to acquire longer due to the present credit conditions (spring 2010)
4. Just how much the monthly lease transaction is, whether any of the lease transaction is to be credited towards the acquire price reducing the purchase cost.
5. Whether or not the tenant/buyer is going to occupy the property or whether the tenant/buyer has the right to sub lease or the right to sell the option.
6. The investor might get a distressed property with a lease option thereby making developments to the property. Then the investor can sell the option to a customer which is able to pay the new market cost for revenue. It is a common financing strategy with investors.
6. a Considered one of this. Owner has a property that requires substantial level of work. Individual purchasers normally cannot get financing or gain too much to consider bothering with physically distressed properties. Investor makes its way into a rent to own agreement for lets say $100,000, rehabs the property in the range of $20,000 and currently the market cost is about $135,000 the investor can sell the right to purchase for $35,000 so the new purchaser would close with the original supplier for $100,000
6. b Another instance of this would be a customer purchases the same real estate and makes use of their own earnings to rehab and might use their rehab earnings towards the down-payment. This enables the purchaser to NOT need to incorporate a large down-payment and rehab money.
Every part works as a lease nevertheless there is a schedule if the purchaser can start looking into buying the real estate.
The terms of the lease need to be managed also. The duties of maintenance, utilities, taxes, pets, the number of residents, what sort of insurance…
Throughout the lease period of the rent to own, the renter makes lease payments to the owner regarding the use of the real-estate with the time periods both consented. In due time of the agreement, the renter has the alternative to buy the house outright; the renter would probably obtain the money to do this applying home loans.
Extra loan may also be used towards the possible buying of the real-estate, or towards the initial payment for a home loan (CAUTION, the client and owner can verify anything they demand, however when the customer would go to acquire permanent financing the bank has ways to what should be considered towards the initial payment or the purchase. Basically a banks only allow for an amount that is beyond market lease to be used for an initial payment) for this reason, the rent to own functions as an automatic savings plan for the renter. This down-payment is used as part of the “option consideration fee”; in the realm of rent to own buying that is a fee charged for the right to buy the real-estate.
Factors behind applying a rent to own
1. Purchaser is relocating and may have to sell an estate in another area prior the client can be eligible to buy the real estate.
2. Client might have had some loan problems that have since been fixed and can have enough money for the payment but needs to time to acquire fixed financing.
3. Client might have initiated a new business and otherwise qualifies that can manage the bills.
The rent to own may carry lesser risk for the owner than mortgage loans would for the lender. In the case of non-payment, it might be easy to remove the occupants by way of foreclosure, which is often less expensive compared to property foreclosure on a mortgaged property. The rent to own might also require a reduced amount of money up front, whilst a home mortgage might demand a major initial payment from the renter.
If the renter does not exercise the option to buy the house at the end of the lease, then any up front option money along with any monies that the renter paid in addition to the market rental rate for this option may be retained by the property owner relying on the contract. This might happen if the renter will no longer wants to buy the house, or if the renter wants to buy the residence however is not able to acquire the financing required to do so.
Benefits to the owner. Allow the owner to sell a house that they may not have otherwise been able to sell. Many instances a seller can net more income when offering terms to a customer.
There is an expression, Price or Terms, Pick One Typically you get one over the other. So for an owner to get a better price they will propose terms that favor the client and the contrary is true. For the purchaser to get an affordable value the terms usually have to favor the owner.
About the Author:
Lease Option Homes
is a marketing channel of Expert Realty Advisors, a company based in Phoenix, Arizona, with lease option sales as the main line of business. The company offers a
rent to own
program for newly-remodeled homes that are ready