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Author Topic: Rent to Own (as the owner)  (Read 13404 times)
snu88
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« Reply #15 on: November 05, 2012, 6:35:34 pm »

I had a similar inquiries while my house was on the market this summer, but my realtor was NOT in favor of any rent to own options. He did recommend a Rent to BUY option: meaning that if the renters paid their rent on time and kept the house in good shape, once their lease was up they would be offered an option to buy the house FIRST before it went back out on the market.  Their "rent" did NOT go toward any sort of downpayment on the house.

Rent-to-own (or lease-purchase) options are not in the realm of most realtors' business scope, therefore, understandably most of them are not in favor of it.

What you describe here is not an option as a legal contract unless a sales price is decided and agreed upon now, which I doubt in your argument. If both parties feel good about proceeding it that way, that may be one way to do it, but that's just not the same "options" in the context of our discussion here. That's a just misuse of the term by someone who doesn't really know about it.
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dravideditor
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« Reply #16 on: November 08, 2012, 5:50:12 pm »

Quote
"What you describe here is not an option as a legal contract unless a sales price is decided and agreed upon now, which I doubt in your argument. If both parties feel good about proceeding it that way, that may be one way to do it, but that's just not the same "options" in the context of our discussion here. That's a just misuse of the term by someone who doesn't really know about it."

BUT Rent to PURCHASE is an OPTION - not legally binding w/o a contract -
but another way to look "framing" the concept of Rent to OWN.

BTW my realtor had years of experience with rentals as well -
so his advice was based on his experiences, so he actually does know about it.

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snu88
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« Reply #17 on: November 09, 2012, 3:28:44 pm »

BUT Rent to PURCHASE is an OPTION - not legally binding w/o a contract -
but another way to look "framing" the concept of Rent to OWN.

BTW my realtor had years of experience with rentals as well -
so his advice was based on his experiences, so he actually does know about it.

The term "option" in this context (rent-to-own or rent-to-purchase) comes with a legal contract, not exactly the same as everyday meaning of "option."

Suppose you found a home that fits your needs. You can't decide whether to buy it now. You only want to try out. So you start off as a tenant and see how it goes. You intend to buy it if you like it. You call this an option. Right? Well, that's not exactly the "option" in rent-to-own(purchase) situations.

You call it an option to mean that you have a choice, but if you think about it, the other side (the landlord) is the same. He also has a choice. He might decide to sell it to you or to someone else (or even if you want to buy, he might want to continue to rent). Therefore, there is no commitment or guarantee set up on either party, beyond the rental agreement. This is just a regular/normal situation of rentals. If you say you have an option, that's fine (because you mean it a casual way), but if you call this situation a rent-to-purchase(own) option, then that is incorrect, because you misuse the legal term.

You might find it contradictory. "Option" in this context (of legal/business situation) is not really an option, it is a legal binding. Exactly the same principle applies to stock options, although details are different.

In a nutshell, this process "rent-to-purchase(own) option" involves setting up a legal contract so you have an option to buy the house at a price agreed by both parties now. This option is good for a certain time frame (such as 1 or 2 years). This option is your exclusive right. You may buy it or you may walk away. But if you want to buy, the other (seller/landlord) must honor the contract. Sounds wonderful, isn't it?  It may look like you got nothing to lose.

The reality is, the other side is not a fool and has no reason to agree on the contract of a losing game. Therefore, there is a price tag attached to that option (or the exclusive right to exercise the option). It can be in several forms--such as nonrefundable option considerations (AKA "downpayment"--although this term is misleading so should be avoided), additional payment on top of monthly rent (refundable only if the option is exercised (meaning that you actually buy it)) or maybe agreeing on a little higher purchase price, etc. In one word, there is no free lunch.

So, both parties come to the table and try to make their best interest out of it. If not, the contract will not take place. The bottom line requirement for this is, both parties must make some kind of commitment. So, in reality, the "rent-to-purchase(own) option" transaction is far from an option that you think about.

In general, in order to make a rent-to-purchase contract, ideally speaking, the buyer thinks the house price will go up AND the seller thinks the price will go down, that's why both parties can agree on the price based on current information. If you are a buyer and you think the price will go down next year, you have no reason to go on this kind of deal. You just buy when the price is down. The same for the seller--you have no reason to do this now if you think the price will go up next year.

This is absolutely a gambling situation. There is a good chance that one side will have a remorse. But this is not different from stock and stock options, in the end. So we may call this a legal gambling. I guess another difference is, you and the other side never meet in person so you have no idea about "the other side" in stock trading, but in this case you see the other side in your eyes so it can be tricky.

When housing market was good, this could actually make many win-win situations, because the house price was eventually going up and it was a matter of how much. The remorse, if any, was not big. But when the market is either flat or downhill, there are more tricky situations.


« Last Edit: November 09, 2012, 3:32:26 pm by snu88 » Logged
dravideditor
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« Reply #18 on: November 11, 2012, 11:57:09 pm »

I was replying in the context of the OWNER - not the renter - which is how this thread was stated.

Based on my experience as an OWNER who had been approached with potential buyers looking for a "rent to own" situation, the context of my "option" was to offer instead a "Rent to BUY" -
which meant that if they chose to, I would rent my house to them for
one year under a LEGAL BINDING  CONTRACT, and at then end of the year
that they would then BUY the property at an agreed price.

Seems like an alternative solution that for the right owner and renter/buyer could work.

Instead I found a solid renter who was willing to sign a 2-year lease instead -
so I did not follow though with this model.

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