The real estate market has been up and down over the past decade, and there has been a resurgence in people who have decided to go the rent-to-own route. Most people don’t realize that you can sign a lease and rent-to-own in certain instances.
However, this is an option for those who often don’t have enough money for a traditional down payment or who may have some credit issues. There are five things you should know before diving into a rent-to-own lease.
Expect to Pay More
If you are renting to own, you should expect to pay more money each moth than if you were renting alone. This is because, in the rent-to-own scenario, typically part of your monthly payment goes toward the down payment. Banks often want to see where every dollar is going, so it is a good idea to write two checks each month, one for rent and one for the down payment. This is also useful if the payment amount is called into question.
Purchase Price is Set Upfront
Finding a place that is willing to rent-to-own is the first step, but setting a fair and reasonable price is also something that must be factored into the equation. The purchase price is determined upfront, so it is important that the buyer research the comps in the area. Additionally, getting an inspection and an appraisal is still necessary to be sure that the sales price is fair, especially if the buyer will be getting outside financing. This is also the time to negotiate.
Look into Mortgage Options
Many rent-to-own mortgages are carried by the owner. However, there may be extenuating circumstances in which the buyer needs to seek financing. In these situations, it is important to know that many banks will not finance a rent-to-own property. This may mean shopping around to find a company that is willing to do that.
Contracts are Still Required
As much as you may trust the owner of the property to follow through with his or her end of the deal, a contract is still a necessary component when renting to own. At this point, it’s best to have professional assistance. A specialist from Carter West says it’s important to seek the advice of a real estate lawyer to help you understand your options during the negotiations. It might also be necessary to find a realtor to guide you through the ins and outs of the contract process. There are several ways to set up a rent-to-own property contract, and how it is set up may affect your tax benefits and consequences.
The Escape Clause
Unforeseen circumstances may make it impossible for you to purchase the apartment at a later date. It is important that you know what will happen to you (and the money you have invested) if this happens. Be sure to include an exit clause in the contract that outlines both your liabilities and the owner’s liabilities if one of you needs out of the contract.
Renting to own may seem like a complicated process, but it is a viable option for some. If the options are researched and a contract that benefits both parties is drawn up, it can be a win-win situation for both the buyer and the seller.
If you have any questions or need help with your rent-to-own situation, chat with a First Team agent. Our specialists are trained to help you through any real estate scenario, no matter what route you take. Find an agent online or reach out and we’ll connect you with an expert in your neighborhood.
This guest post is written by Emma Sturgis, a freelance writer based in Boston, MA.
