Rent_To_Own_Homes_Explained by georgetitan


Rent To Own Homes Explained

Word Count:

The concept of rent to own homes is explained by way of example, and reasons to consider his approach are

rent to own homes, lease purchase homes, rent to own real estate, FSBO properties, for sale by owner

Article Body:
If you desire to own your own home but are unable to secure conventional financing today, leasing a home
with an option to buy may be your best option. A lease purchase can make your rent money work for you
instead of making your landlord rich. Typically rent to own homes offer rent credits that reduce the final
purchase price!

<b>Here's how it works:</b>

A home is made available via a standard lease with one important addition. Included is an option to purchase
that home at a specified price over a specified time period (usually one or two years). In order to acquire that
option, the renter/buyer must pay a one time, NON REFUNDABLE, fee called the option consideration. The
exact amount is negotiable, but it is usually ranges from 2.5 to 7% of the purchase price. A fair contract will
credit the buyer 100% of that option consideration upon closing of the sale. Furthermore a negotiated
percentage of all rent payments should be applied toward the purchase price of the home. Some typical
terms and conditions one might expect to find in a contract follows:

<li>In order to receive a rent credit of 50%, time is of the essence. You MUST pay your rent on or BEFORE
the due date of your lease (typically the 1st of the month). This means it must be received by the lessor
(landlord) on or before the due date. Any payment received after the due date will result in a 0% rent credit
for that month, a late fee may apply and you will not be building any equity.
<li>Maintenance is the responsibility of the Tenant Buyer. You are now renting to own and homeownership
requires maintenance. This includes things like broken windows from stones or baseballs, clogged drains,
peeling paint, broken appliances, burnt out bulbs, lawn work/snow removal, etc. If any major repairs are
required to ensure habitability, the owner remains responsible.
<li>You need to have Option Consideration. Option Consideration is typically 2.5% to 7% of the purchase
price of the home. It is a non-refundable payment, of which 100% is credited toward the purchase price,
which binds the lease purchase contract.

<b>Here's an example transaction:</b>

We have a nice 3 bedroom, 1 bath single family home located in a near west suburb of Chicago in a great
neighborhood with good schools and a strong community. It has been freshly painted, cleaned, and is ready
to move in. The purchase price will be $215,000. Monthly rent payments will be $1,500 and you will
receive a 50% rent credit ($750 per month). You need between 2.5% and 7% in up front Option
Consideration. Let's say your budget allows for $6,000 for Option Consideration. This equates to
approximately 2.8% ($6,000/215,000). You will also need $1,500 for the first months rent for a total initial
payment of $7,500.

Please note: Option consideration is not a security deposit. It is a non refundable payment toward the
purchase price and is 100% credited toward reducing the price of the home.
Now suppose you paid all your monthly rent payments on or before the due date and you choose to buy the
rent to own home at the end of the 12 month lease purchase contract. You will have $15,000 in equity before
you even own the home! Here's the math:

Lease Purchase Price - $215,000

Less: Option Consideration paid at lease signing - $6,000

Less: 50% rent credit of $750/m * 12 months - $9,000

Net Purchase Price after credits - $200,000

You started with $6,000 and by paying your rent on time; your equity position grew 150% (another $9,000)
for a total of $15,000 with 12 months. Not a bad deal! Many people find it nearly impossible to save $9,000
in a year with all the costs of living constantly on the rise.

<b>What's the catch?</b>

Now you may be thinking, "OK, what's the catch? This sounds too good to be true."

Answer, there is no catch.

There are many possible reasons a landlord/seller may want to enter into a rent to own agreement. Some
reasons may be:

<li>Needs to maintain ownership for at least one year for tax purposes.
<li>Unable to get a fair price due to local conditions.
<li>Tired of performing minor maintenance.

Furthermore, when one sells a home through a realty service, a commission of 5-7% is typically paid. In the
example above, this can cost more than the rent credit. Since realtors are usually not involved with this type
of transaction, there is no commission and the landlord can afford to pass along the savings to tenant/buyer
in the form of rent credits.

Also, when the Tenant becomes the Tenant Buyer (via rent to own), there is an immediate sense of pride in
ownership. Tenant Buyers add value to the community. They take care of their future property, make
improvements, and feel good knowing their rent money is working for them (reducing the purchase price)
rather than just making their Landlord rich.

There are also many advantages for the renter:

<li>Build equity toward home ownership.
<li>No bank or finance company involvement.
<li>Poor credit history may not be an issue.

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