Lease to Own Real Estate
Credit problems plague people across the globe. These problems can lead to many other problems not limited to difficulty purchasing vehicles, getting jobs, opening checking accounts, and purchasing or renting a home. For those who are experiencing credit problems hope seems like a long lost commodity when it comes to the very American dream of owning a home of one’s own.
The good news is that there are some savvy investors around that are willing to take the risk on those who have had credit problems but are attempting to get their lives back in order. The bad news is that this good will often comes at a rather high price to the consumers. Getting into trouble with credit takes a while from which to recover. For many the process is long and filled with pitfalls and missteps along the way. For those that are living the nightmare of poor credit there are times in which the situation must seem hopeless.
For this reason investors that offer lease to own real estate to those with less than spectacular credit are often viewed as saviors on the one hand and villains on the other. However, they are taking a risk that others are unwilling to take on a person that has proven not to be the best credit risk in the business. In other words, many would find that they are justified by charging a higher price or interest rate than traditional lending institutions will charge. After all, it is their money that is on the line if the lessee decides to default on the contract. It is also their money that will be required to make any repairs that will be needed if eviction becomes a necessary conclusion.
For investors who are interested in ‘buy and hold’ investing this is one way of making that system work in their favor. Many times the ‘buyers’ will find another property after a couple of years and will have essentially rented the property for a specified amount of time. At other times they will seek alternative financing once they have been able to straighten out their credit situations. Either way there are many occasions when the property is returned to the investor and has turned a relatively decent profit while holding those who took some degree of ‘pride of ownership’ in the property during that time rather than ordinary renters who often have little or no regard for the condition of the landlord’s property.
There is more than one way that a lease to own deal can work. The most common however, is that there is a specified amount of time typically 2-5 years in which those that are leasing the property can live in the property with a portion of the monthly lease being applied towards a down payment for the property once they are able to get traditional financing. If a twenty percent down payment is achieved during that time the odds of them being approved for a loan are greatly improved. If they (being the lessees) combine this opportunity with serious efforts to improve their credit scores then there should be no problem achieving this.
As a real estate investor this situation is so much more attractive than renters for many reasons. First of all, the maintenance in these cases becomes the problem of the lessees rather than your problem, you have ‘renters’ that are hoping to have ownership of the property in time, and you can charge a little more each month for rent in order to cover the money being applied to the down payment on the property.
14 Responses to “Lease to Own Real Estate”
May 28th, 2008 at 3:16 am
I definitely think rent to own is going to become more and more common as many “average” homebuyers are priced right out of the market and can’t obtain traditional financing.
May 28th, 2008 at 5:06 pm
Rent to own IS a great way to prevent damage or abuse to a property during a lease! With so many “average” American families finding themselves facing a foreclosure, it’s a perfect opportunity to regain some of their financial self-esteem and get back on their feet again. Great article!
June 2nd, 2008 at 7:12 am
Lease to own can be a great situation for both parties. The buyer doesn’t have to worry about a high interest loan and their money goes towards something they will eventually own. The seller gets to use the buyers money to pay off his mortgage and make some money on top of it. It’s a win win situation.
June 21st, 2008 at 9:33 pm
Its too bad this practice isnt more common! Wasting $$ on rent is terrible… especially for people who can’t afford a downpayment… Im surprised many new construction buildings dont offer this. Boston City Properties Real Estate Agency website mentions this really doest go on too much in the Downtown Boston real estate market. Have you heard of any cities or countries where it is real popular?
July 4th, 2008 at 5:28 pm
It’s a great market to be well versed in lease to own options and other unconventional financing – more and more people struggle with the economy and mortgages so it seems like a viable way for them to finally own a home after all other conventional financing options fail.
July 22nd, 2008 at 6:36 pm
Lease to own is great for investors for many reasons you pointed out. The most important IMO is that the lessee takes care of the repairs and typically treats the home much better then your normal renter.
July 25th, 2008 at 6:15 am
Renters wanting ownership rights and eventually buying is the goal. Give them some time to fix their credit I say, let’s make it a win-win.
August 21st, 2008 at 3:36 pm
Rent to own could be a win-win situation for both buyers and seller. During this mortgage crisis, this seller find it hard to find buyers of their houses and buyers couldn’t afford to to buy high rate houses. So if sellers offer rent to own, many buyers will grab it.
October 13th, 2008 at 5:36 am
I can agree with Linda – it’s really a win situation.
October 21st, 2008 at 7:36 pm
Lease options are great, unless you put one together and the market goes down. I’ve had a couple fall through because the market has gone down substantially since the option contract was written. The owners left with the house and the option money.
In most cases lease options are the way to go though. Most lessee’s take great care of properties and even fix them up.
October 27th, 2008 at 8:56 pm
Lease to own is a great way for the renters to benefit from being renters, but still enjoying capital growth (when that returns).
Renters do however carry bigger risk. After the 5 years run out and they are not able to pay the balance of the outstanding cost price (via mortgage/bond), they stand to lose everything they put in the house.
But it does make it much easier initially to get on the property ladder without applying for a bond.
November 26th, 2008 at 1:35 am
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November 26th, 2008 at 4:00 am
Lease to own can be a great option right now; thanks for pointing that out.
November 26th, 2008 at 4:08 am
Great info! I think many people forget that lease to own is an option