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Should You Use A Lease/purchase (rent To Own) Approach To
By Bob Pappas, Fri Dec 9th
Whether you are a home owner trying to sell your home or anlandlord trying to lease it, you should consider thelease/purchase approach. It can result in higher cash flows,larger profits and fewer headaches. Have you ever dealt with bad renters? Late payments? Stains onthe carpet? Calls late at night about a stopped toilet?Sometimes being a Landlord is not a fun game, especially whenyou have a nice home and bad tenants. Have you taken advantage of the recent low interest rates andrefinanced your home to the maximum? What about a home equityloan or other form of second mortgage? Do you know how much youcan walk away with from the closing table after paying allmortgages and associated costs, like realtor fees? Many peoplewalk away with very little or nothing. Some even have to pay. Ifthis scenario applies to you, it may make sense to delay thesale of your home. It may be possible to generate positive cashflow and lock in a higher selling price with a (for sale byowner) lease/purchase agreement.
Here's another scenario: You want to sell your own home, butit's not moving as fast as you would like (or as fast as the"fast-talking" realtor who convinced you to list it). You'vethought about renting it to cover your mortgage payment, butnobody wants a short-term rental with no idea when they have tomove out. And what if the tenant WON'T move out when you have itsold? A lease/purchase agreement could be a solution. So you decide to leave it vacant. You make two, three even fourmortgage payments. Your insurance company cancels yourhomewoner's policy because it has been vacant for more than 30days (it's true, they can do it so read your policy!). You don'twant to severely discount the price, yet you need to dosomething NOW! Here's a solution - lease with option to buyor lease/purchase (also referred to a rent to own). What does the lease/purchase of a home mean? LEASE + PURCHASE OFFER = LEASE/PURCHASE AGREEMENT At some time in your life, you have rented a house or apartment,so you are familiar with a lease agreement. If you have everbought or sold a house, you are familiar with a purchase offer.The lease/purchase agreement is a hybrid of the two - a leaseagreement combined with a purchase offer (sometimes called "rentto own" or an "option," or that is, the right to buy at anagreed upon price). Here's an example of how lease/purchase works. Let's say
youhave a house worth $100,000. The "going rent" in your market forthat house may be about $800 per month. A lease/purchaseagreement would read essentially as follows: Lease Term: Two Years Monthly Rent: $800 Purchase Price: $100,000 Rent Credit: $400/month Usually, part of the monthly rent will be credited towards theprice of the house. In the above example, 50% or $400 per monthis being credited. So if the tenant decides to buy after oneyear (lawyers call this "exercising their option to buy"), theywould pay $100,000 - $4,800 = $95,200. If the tenant/buyer doesnot purchase the property, the owner would keep all of themonthly rent. The best part is, the $400/month is considered"option consideration" by the IRS and does not have to bereported as income until the house is sold or the lease/purchaseagreement expires! As you can see, there are many benefits a lease/purchase canprovide you, including: Immediate relief from mortgage payments Fast Solution to the "Nice House in a Slow Market" scenario Guaranteed no vacancy No need to severely discount the purchase price Tax deduction (since the property can be treated as "rental" fortax purposes) WHY DON'T I JUST LIST IT WITH A REALESTATE AGENT? It can't hurt to list with a realestate agent or broker.However, most realestate brokers simply "list" your property.This means they stick it in the multiple listing computer andwait for a bite. The first problem with this method is thatthere are thousands of other homes in the computer that readjust like yours. If you want to move your house FAST, you haveto offer something different. The lease/purchase is that specialsomething that makes your house attractive. The second problem is that most Realtors don't know what alease/purchase is, how it works, and how to market such a deal.Most Realtors will not get involved with a lease/purchase,because they simply want a higher fee (after all, they have tomake enough money to pay for those large display ads with theirpicture on it!). For more information, check out JSC Rent To Own Homes/ About the author:Bob Pappas is an associate of JSC Rent To Own Homes, a unit ofJSC Investments LLC. Bob acts as an investing third party incertain situations where either a renter would like to purchasea new house or the house he/she is currently renting, or aseller wishes to sell his/her property through a lease purchaseagreement. For more information, visit http://www.jscinvestments.com/
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