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Real Estate Blog

Rent to own — A good bet?

By - Last modified: October 11, 2012 at 9:07 AM

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The terms “rent to own” and “lease purchase” are more common than ever — if you have an investment property, you likely have had a prospective tenant bring the subject up with you.

There certainly are some positives and negatives to a “lease purchase” (also usually known as “rent to own”) transaction in real estate. I get a fair number of these inquiries and most of them are from potential homebuyers facing poor credit scores for a few years, generally from a recent foreclosure. I received a question from a listing client yesterday about whether it would be a good idea to discuss a lease purchase with some coworkers who seemed nice.

 

The basic idea is that the buyer and seller write a contract that allows the buyer to rent the property for a specified period of time, after which the renter/buyer would qualify for a mortgage and close on the home. During the rental period, a portion of their rent payments may be allocated toward reducing the ultimate purchase price.

 

Positives for a potential homebuyer are that they get the home they want now and have the critical time needed to improve their credit and gather down money. Positives for the seller are that they get their home “off the market” and can move on with their life.

 

Negatives — there are, unfortunately, a lot. Here are just a couple: The buyer is trusting that the seller won’t go into foreclosure or keep their upfront down money for some reason. The seller is trusting that the buyer won’t trash the house (or any other rental nightmare scenario) during the rental period then disappear before the purchase phase.

 

There can be a LOT of assumptions made in a lease purchase (or “rent to own”) situation: The challenge is to get them all ironed out ahead of time!

 

I would almost recommend that a seller hire an attorney for review of the proposed contract, just to make sure as many possibilities are covered in the document. Good luck!

 

Jeff Geoghan is vice president of marketing and communications for Coldwell Banker Select Professionals and Select Services, based in Lancaster City, with 10 offices in eight Central Pennsylvania counties. Jeff lives in East Petersburg where he also serves as mayor. Jeff has been actively involved in local government and business and has been used as a source by local, regional and national publications.

Write to the Editorial Department at editorial@cpbj.com

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