Ed: Hey everyone, this is Ed at the West Coast Property Group, and today I wanted to cover a quick little topic about what is rent-to-own? So what exactly is it, and is it a good option for people looking to get out of renting and tired of making their landlord rich? So rent-to-own is where you basically… You lease a home, but you also control the property by having the option to purchase it at a later date during that lease period.
One benefit about that is the owner cannot market the home for sale. They are technically bound by an agreement to sell you the home at a pre-determined price that you both agree on, and there’s basically two parts to this agreement. So the first is just a standard lease agreement, basically which spells out the monthly rent, and the other different parts of it that you both agree on are various terms of that lease, so different stipulations that you both agree on. The second part is the real estate option part. So this is basically a one-way agreement that binds the seller to sell you the house at the agreed upon price. So the seller has to sell to you, and another kind of a strange part of it is that you’re not absolutely obligated to fulfill that obligation at the end, it’s kind of a one-way agreement.
Couple of things I have here on the back of the board, you may not be able to see them, and the questions that arise are who pays the property taxes and the insurance during this rent-to-own period? So the owner of the property is definitely responsible for paying the taxes, and since there’s usually a loan associated with that property, they still have to pay insurance that is required by their mortgage responsibilities. And when you enter into a lease option arrangement with me here at West Coast Property Group, you are definitely responsible for maintaining renters’ insurance. That is something that we definitely require.
Another question is… People that they’re renting, they ask how this is different than a typical rental. This is a way to help you get started towards buying your own home, so part of your rent payment goes towards the purchase of the home that you’re going to lease. That may or may not be the case in every single house, that is something that is arranged between myself and the seller of a property. Some sellers do not want to do that, some are okay with it.
So instead of throwing your money away, if we get back to the rent write-offs is what we’re [inaudible 00:03:08], so instead of throwing your money away each month like you would with rent, and you have nothing to show for it at the end of that rent period, each month during the lease option period a portion of your monthly payments get credited towards the purchase price of the home.
And another thing that gets asked often is about credit. So people say their credit’s not real great, “What can you do for me? Is this still something that’s beneficial?” My answer is definitely “Yes.” So in most cases with rent-to-own properties, especially with us here at West Coast Property Group, we specifically assist you in those needs. You will work with a mortgage broker that I have set up, and if needed we will enroll you in a credit-helping service to help you strengthen your credit. One thing that my mortgage broker will do is lay out a plan for you to help you qualify for a loan at the end of the lease period.
Another part of that is the minimum down payment that’s required is usually a minimum of 2% to 3%, typically we’re in the 3% to 6%, but that can vary, and there’s a few ways you can fund that. You know, if you don’t have the savings, you can also borrow from your IRA if you have an IRA retirement account, and sometimes your 401(k), so don’t overlook that possibility. Another part here on the back of the board, can you have your lawyer look at the paperwork? Absolutely. It’s an excellent idea to have your attorney look over this paperwork. That’s something that should not be overlooked. And it’s not mandatory, but we require that you at least think about it.
Another thing is does this whole process work like a normal sale? Not really. So it’s typically a lot faster than what you would have to go through with a typical bank, so approval can be granted and delivered within a few days. From there, all that is needed for you is to put down the deposit, “Option to consideration” is what we technically call it, sign the agreement, and you move in. It’s as simple as that. So if your credit is a little bit low and you’ve always been struggling with trying to get a loan for a property, to buy a house, this method is pretty quick.
Another thing that is a question that’s raised is can you do some renovations, can you do improvements to the home as you live in it? For the most part the answer to that is yes, as long as you contact the owner before making any major changes, and usually we will require you to have the work done with a qualified tradesperson, a contractor. That’s generally not a problem, but for flooring, carpeting, appliance changes, pretty much all that’s pretty basic.
Basically in order for you to purchase a home, in most cases you’re going to need to meet three basic criteria. You’re going to have to have some good income, a decent credit score, and 3% to 6%, maybe 10% down payment for a house. So if you’re missing one of these and you’re tired of throwing your hard-earned money away in a typical rental house, you may be a great candidate for rent-to-own property. So every month we acquire properties through probate, we structure deals with landlords in different ways to purchase their properties, and this would be a great way for you to lease, option, and get yourself into a property that you may want to own. So if you’re curious and you want to learn more about this, log onto our website at www.westcoastpropertygroup.com, or just give me a call at (541) 780-2424 and we’d love to help you out. Thanks.