Rent to Own??

Discussion in 'Homesteading Questions' started by ellebeaux, Mar 26, 2006.

  1. ellebeaux

    ellebeaux Well-Known Member

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    Hey all,

    I may have to leave my beautiful little homestead for a grander opportunity. I would like to hold onto my 0.25 acre 2BR 1BA house for a few more years. I have a complete deal on my interest rate (3.625% fixed for 30 years) so I know I'm not going to be able to buy a house as cheaply in this area again. But I don't know if I'll be returning here or not. Plus, since I will be out of the country, I need to get a property manager to handle it while I'm gone.

    Has anyone ever offered and/or bought a house using the rent to own option? Did you do your own financing?
     
  2. ellebeaux

    ellebeaux Well-Known Member

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    Yikes! That's the sort of info I'm looking for! I believe it is okay for me to rent out the home. I had a first-time homeowner's loan with about $6-7000 in closing costs assistance. It's considering a loan if I sell the house within 5 years of ownership otherwise it will be considered a gift if I keep the house for 5 years. Plus, they wanted me to live in the house for at least a year before renting it out. I hate the idea of selling this house as a) I won't make much of a profit, b) I won't get as good a financing deal next time and c) I love my little house!

    I didn't even think of the fact that I would be attracting people that couldn't get traditional financing. I was thinking of what someone wrote on one of the other threads. I believe he said he would rent to people that were interested in eventually buying the house. That way, he was sure they would take good care of it!

    I'll call the lender when I know for sure what my situation will be. I find out on April 6th and I'm going nuts waiting!

    thanks,

    Beaux
     

  3. frogmammy

    frogmammy Well-Known Member Supporter

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    Excuse me. We did one of those "rent to own/rent credit" when we bought our house. We paid rent for 2 years then a percentage of that was applied as a down payment when at the end of our two year contract, we received financing (from a BANK) for our house. With what money we had also saved, we were able to put 40% down on our house, get a lower interest rate, lower payments and not have to pay PMI.

    Not everyone is out to cheat everyone they do business with.

    I will say though, the seller told us we were the third family that entered the contract for this house...the only one to live up to the contract terms, though and actually buy the house.

    Mon
     
  4. ellebeaux

    ellebeaux Well-Known Member

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    Thanks Mon! That sounds like a good way to write a contract. I like that percentage part, because otherwise, I wouldn't make any profit on the house. That makes sense to me. I just would like to do it in a way where if I wanted to keep the house, I could, and if the tenants wanted to back out of it, they could without penalty.
     
  5. Misty

    Misty Misty Gonzales

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    some people can not get traditional financing because of unfortunate experiences in their lives such as job loss or illness. We had that happen. We are back on our feet now, but we did loose our house. We had worked hard for 10 years on that house. It was our second purchased home. We had refi'd it and could not sell it for the price of the refi....we tried very hard.
     
  6. frogmammy

    frogmammy Well-Known Member Supporter

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    ellebeaux,

    The contract was written such that the agreed upon price was listed in the contract. If, before the 2 years was up we moved/left/whatever, we received NO refund. If we could NOT have gotten financing at the end of two years, we would have received no refund of monies paid, and the contract would have rolled over to a month-to-month rental...at the same monthly payment. We also paid, first, last and a deposit. We wanted to pay a LOT down so that monthly payments would be small....in fact, we kidded that we wanted to be able to collect aluminum cans and still make the full monthly payment.

    Mon
     
  7. reverend

    reverend New Member

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    The guys over at the naked investor forums specialize in what your asking it would be well worth your time to ask there. Basically as some of the others have said not every one is out to get you on this due to divorce, illness or whatever can not get a conventional loan, you would not rent to just anyone with out doing a screening on them same thing for renting to own. The basic gist of it is you would probably ask for a non refundable deposit of 2-5 % of the purchase value with say 50% rent credits example rent of 1000 dollars 500 would go towards the purchase. This would be carried through for say a one year term giving your prospective buyers time to arrange financing clean up credit problems or whatever their problem may have been.
     
  8. halfpint

    halfpint Well-Known Member Supporter

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    We rented to own our 2nd house as we had not sold our 1st house (just before moving a large company laid off many people and housing was not selling where it was), and also wanted to see if we liked the house and area. We ended up buying it after about 14 months, but had up to 2 years to purchase before the house would go back on the market. and I think about 70% of our rent went toward purchase price. Not all rent to own are problem borrowers, we simply did not want to own 2 houses at once at that time - although after the 14 months we were renting out our 1st house and were able to purchase. We sold our 1st house to the 3rd renter on a rent to own basis so we've been on both ends of that type contract.

    Dawn
     
  9. Kevingr

    Kevingr East Central MN

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    Reverend has stated it exactly correct. I rent out several properties, but don't do the rent to own deals. Rent to Own is a great way for people to get into a home that they want to keep but for whatever reason can't afford it today. The investor is playing the odds. 70% of the people who enter into a rent to own contract do not follow through on the contract. The investor gets go keep the 2-5% option fee, retain ownership and find another person to sign a rent to own contract. It is also true that people who get into a rent to own contract tend to take better care of the homes than people who just rent. My expenses to fix up a house are a lot higher after my renters move out then the typical rent to own tenant.

    That all said, get a lawyer. There's some very fine details related to leases and options to purchase (that's what a rent to own contract is called leagally) which could get you into trouble down the line if not done correctly. A good realestate lawyer can protect you in that regard.
     
  10. MarleneS

    MarleneS Well-Known Member

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    I'm sorry if I hurt anyone's feelings on the rent to own thing. I was strickly looking at it as pointing out the risk to an owner of the property. I'm sure there are lots of exceptions to the rule why some people go that route as a purchaser. I also appreciate the fact that those of you have done the rent to own route admit that you did so because there were likely problems in going the traditional lending institution route. And some were even honest enough to admit that it more often then not takes several tries before you have a successful rent-to-own - owner.

    Actually, there is a house near our place, the owner lives in Georgia, and he only rents it out on the rent-to-own bases because he believes people thinking they are going to purchase the house take better care of it. In 9 years he's rented-to-own to 6 different families. So...there are advantages as well as risks I guess. He said he gets a substantiate deposit which is not refundable; and he markets the house at way above market value. He also doesn't really care if he sells the house for he plans to relocate back to this area when he retires.

    He owns the house free of any liens. I still advise anyone with a loan on their property to check with the lender before you make any agreements with anyone else concerning renting etc. And the advise about getting a lawyer is always a good one.


    Hugs,
    marlene
     
  11. ellebeaux

    ellebeaux Well-Known Member

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    Wow, thanks for all the great advice. I guess contacting a lawyer is the way to go. Ideally, I guess I'd like for it to appreciate for 3 years and then sell it. By that time, I'd know if I was coming back here or not. You all were so supportive during my quest to find my little homestead so I know you understand that I'm not quite ready to let go of it, even for bigger and better things!

    thanks again,

    Beaux
     
  12. bare

    bare Head Muderator

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    I'm of the opinion that you don't need a 200/hr laywer to figure out if it's to your advantage to offer your property as a rent to own property, all you need is a savy property manager that has worked with that type of property in the past.

    I've managed and sold numerous properties in the past on a rent to own basis, and not only know my tenants, but have airtight contracts and the know how to sell the property in question. Realtors charge upwards of six percent for the same thing I can legally do for a one percent commision, which I'm happy to take.

    Interview and hire a property manager to watch over your investment.
     
  13. wiggles12

    wiggles12 Active Member

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    If you love your home, then why not hire a trusted friend to play property manager for you instead of some company where you will be just a number. If you don't know what your future holds, then hold the house till you do know, especially if you won't make a ton of profit.
     
  14. Kevingr

    Kevingr East Central MN

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    Bare, in Minnesota if you buy and/or sell more than 5 properties a year for a fee you need a Realtor's license. If you're selling for a 1% fee that's pretty darn good. For property managers around here they're getting 9% of the gross rent to manage a property. That's for small properties like single family homes or duplex's.
     
  15. bare

    bare Head Muderator

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    Same rules here Kevingr. I've never even come close to selling five properties on lease option a year. The only reason I've been involved in so many is that I've been a professional property manager for more than 20 years.

    My management fees are about the same too at 10% of gross rent unless I manage more than one property for an individual.

    The last thing I want to do is get crossed up with any of the local realtors, or the state. I don't begrudge them their commissions at all, it's just rare that you find a realtor around here that is willing to work with a lease option because they don't like waiting for their delayed commission.

    Actually with the way the real estate market has been booming up here the last few years, I run into very few owners wanting or willing to lease option. It really only works well for properties that are hard to sell and almost anything has been selling lately.
     
  16. KathyJ

    KathyJ 1-5-acre dreamin'

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    We did a lease option with our house we purchased last year.
    We had a two-year option with $300 of our "rent" going towards the down payment.
    Owner had bought an additional house and wanted to defer taxes for two years.
    Worked well for both sides, we "saved" our down payment by paying him.

    We would have qualified for a loan at the time we signed on the lease option.
    The house is definitely a fixer-upper, so that might have played into it on his end.
     
  17. freeinalaska

    freeinalaska Well-Known Member

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    I hear what you are saying, but think that is kind of closed minded. Up here in Alaska rent to own, lease purchases and owner financing are the primary ways people get into rural properties. Many folks up here live somewhat of a subsistance lifestyle and banks won't touch them. A bank won't even start to consider the hunter, trapper, summer carpenters. Many people have no real job and spend their time growing food, hunting, cutting firewood and do cash work whenever it fits in. A loan officer will look for a permanant job and a certain amount of income and credit history.

    So the responsible person living outside the norms of society, with no credit cards, no car loans, and no "real" job hasn't got a chance of getting a loan. It's not just folks who have had hard times, (divorce, illness etc.), or folks who have screwed their credit that can't get bank financing, it can also be people choosing to live outside the box.

    I am currently employed and could borrow from a bank should I want to, but for many years of my life a bank wouldn't touch me. The time that baffled me was while I was self employed as a telecommunications engineer. I was netting almost 6 figures a year for the last few years, the business had shown steady growth for the last five, I had my time booked for the next year and the bank just shook their head. I couldn't even get a much credit on credit cards. Five years of tax returns and previous credit history didn't seem to matter much. The 'self employed' under the 'employer' section of the loan application was the killer.

    I don't blame the banks for their policies, but it leaves out a group of people much represented here on the HT forums.

    Though caution is necessary, a rent to own or owner financed agreement just might give the opportunity to the kind of people I highly respect.
     
  18. ellebeaux

    ellebeaux Well-Known Member

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    Well, maybe there is a way I can get some money and do some good at the same time.

    I'll start talking to people around here as soon as I know next week if I'm really going to be moving or not.

    I like the idea of the 2- 5% option fee too!

    I wonder how to figure out what the anticated value of the house would be in two years?

    thanks all,

    Beaux
     
  19. MarleneS

    MarleneS Well-Known Member

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    freeinalaska - my advise still stands. I would give serious thought to putting my real estate into the hands of someone a bank would not lend money too. Hopefully, you will take into consideration I am giving said advise to the land owner...not the purchaser.

    As you yourself has pointed out -- in a hard to sell market you will find people more willing to work with buyers. It's along the same lines of desperate people do desperate things.

    If as a land purchaser you can actually find someone to hand over the use of their real estate with nothing down and a large portion of your rent going towards the land purchase or even the would be down payment - my advise to you is go for it. I think that is great advise to someone who does not have a down payment/poor credit and has to pay rent to have a place to live.

    Not only does my advise to get your money free and clear stand, I still stand on my "if you have a lien against your property - do not do anything that involves a contract with someone else without their knowledge and agreement. And do all of the above with the help of an attorney."

    Hugs
    marlene
     
  20. Grandmotherbear

    Grandmotherbear Well-Known Member Supporter

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    I don't believe the owner can be the one to back out of a rent-to-own contract if they change their minds....I would be leery of this way unless you didn't care if it sold,as opposed to didn't care if it didn't sell.