Thursday, April 24, 2014

Understanding the Risk of Renting to Own a property






In the past the American dream consisted of owning a home; with the unstable economy and a crashing housing market, that dream seemed unattainable for many people.

 However, things are looking up with a rebound in the economy and the housing market slowly climbing out of the rubble. Many people may be interested in owning a home, but the recovery is slow and a certain sector of the population may not be capable of attaining a loan or plunking down a hefty down payment. One option to circumnavigate this issue is rent-to-own housing.

 Some of the perks to rent-to-own are: buyers can build credit and save money during the rental period and depending on the contracts a renter has the right to change their mind. 

On the other side, some of the disadvantages may be enough to send potential rent-to-owners running for the hills. There is an upfront option fee that generally consists of a weighty down payment consisting of a percentage of the selling price. 

The rent may be higher than the equivalent property in the neighborhood and this is because of rent credit that is applied to the option fee and ultimately becomes part of the seller’s payment. Also, if the seller fails to pay the original mortgage payment, the property may be foreclosed on and the buyer may be forced to move. 

The seller may get lucky and lock in a high price that generally cannot be negotiated once agreed upon; however, this can obviously go both ways if the neighborhood begins to flourish. Also, if someone else approaches the seller with a better offer, they cannot take that offer over the original buyer. All repairs become the buyer’s responsibility and at the end of the rent-to-own lease the buyer may still not be able to buy the house.

It can be a risky alternative to the traditional buyer/seller relationship, but to a motivated purchaser with spotty credit this situation can work out quite nicely. Because of the potential for loss on both sides of this agreement people interested in rent-to-own deals are strongly advised to seek the advice from separate real estate attorneys.


Statistics from 
http://home.howstuffworks.com/real-estate/buying-home/rent-to-own-homes3.htm

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