Why look for rent to own real estate?

Save time! Life is all about taking reasonable steps toward our goals. While it is undoubtedly the “American Dream” to own a home, it is also one of the biggest investments we will ever make in our lives. As we’ve witnessed with the mortgage meltdown, buying a home isn’t something that should be rushed into prematurely. Buying a home intelligently involves having stable employment, a sizeable down payment saved, good credit and a reasonable interest rate, in addition to learning to budget. Looking for rent to buy homes can help alleviate the hectic rush typically associated with buying a house.

Save a down payment in the short run! While the cost of rent to own property may be more than a regular mortgage initially, it affords you the ability to gradually save up a down payment. Not to mention — instead of throwing money away to someone else’s mortgage, you will be taking a logical step toward home ownership (without leaping into a high 30-year mortgage). With rent to own real estate, you will always have the option to decline the offer once your grace period is over (generally 3-5 years), in which case — nothing gained, nothing lost.

Save money in the long run! When you look at rent to own homes, you will be guaranteed a fixed purchase price so you can profit from the appreciation over time. Since the housing market bubble has popped and housing values are low, now is a good time to look! Many places also offer 5-15% off the final sale price as a reward to tenants who are pre-approved for mortgage financing before the end of their term.

Whether you have poor credit, no credit or whatever the case may be, rent to own homes are a great way to rehabilitate your life and test drive a new home, without sacrificing the space or your family’s needs.

A few years ago, Detroit, Michigan was rated one of the ugliest cities in the nations as housing vacancies skyrocketed. Many who remained in their homes wanted out but couldn’t afford to leave or found it impossible to sell. City planners were torn: they wanted to scrap entire neighborhoods and start over, but doing this would mean they’d need a pool of qualified buyers with money in their pockets. Their end solution involved offering new houses for rent.

Before some of the new programs, people paid exorbitant rents to scum-lords who weren’t taking care of properties, but now there are more than 230 newly constructed rent to own homes at lower prices than the ramshackle housing they were paying for before.

The Brightmoor rent to buy homes allows residents to lease four-bedroom, two-bathroom, fully carpeted Colonial homes with garages and appliances for just $500/month! If tenants opt to buy after the five year lease period, the price will be set according to past payments, the value of the home and any repairs paid for over the years. Home ownership pride has taken hold in the community, some residents say, and the neighborhood has improved remarkably. Over the years, $70 million in grants have been invested into the project, but home ownership has gone up and crime has gone down as a result.

Thanks to rent to own property opportunities, neighborhoods that were once ghettos are now becoming strategic communities bustling with economic opportunities, after-school programs, sit-down restaurants and affordable housing.

When a 25-year-old hair stylist and her 22-year-old car mechanic boyfriend went apartment hunting downtown, they were astounded by the monthly rent prices, which were often more expensive than the cost of a mortgage. It seemed like a better decision to buy, in their case.

While the couple has stable, well-paying jobs, saving up for a down payment and establishing good credit to get a good interest rate was a problem. They may have everything needed to qualify for a house — except that $20,000 – $30,000 in the bank. In their case, a rent to own property is perfect.

This couple can begin building equity by investing up to $20,000 in a renter savings plan, withdrawing it tax and penalty-free after a set time period to use as the down payment for the rent to own property. Sure, they could invest in other ways and just wait it out, but they would have a harder time saving while renting an apartment (essentially paying off someone else’s mortgage) and they wouldn’t have the added benefit of living in a spacious house.

Places like Michigan are looking at rent to own homes as a way of turning over the high occupancy on foreclosed or over-inflated vacant housing. Many sellers are offering special incentives to first time buyers who can secure financing before the three-year lease period expires. For instance, the cost of the home would be reduced 9% if tenants can gain mortgage approval from a bank within the first year, or reduced 5% if tenants have a letter from the bank any time between one and three years.

Your mother has downgraded to a retirement community, leaving behind a $350,000 mansion that has appreciated to $1 million. While the mortgage has been paid off, you’re left with a $10,000/year tax and maintenance price tag. Besides, it’s beautiful beachfront property going to waste! You may have had the house on the market for a while but the buyer’s market isn’t so hot right now. Why not consider making it an ideal rent to own property?

If you were to charge $2,400/month (a below-market rent) on the rent to own real estate, then you could certainly cover all maintenance and find a qualified buyer in no time. If you wait until the market rebounds, you may be in a position to ask more for the house in 3-5 years.

Finding a good renter is obviously important because you’ll want someone who won’t trash the place. You may want to hire a middle man to deal with property maintenance and any issues that may arise so you can sleep at night and not be unnecessarily hassled.

Also consider other market opportunities. For example, houses for rent are good for expatriates who are looking to relocate. They can stay in a house and get to know the area before making any quick decisions. They just may end up falling in love with the place and keeping it at the end of their lease too! Some sellers offer up houses for rent to vacationers too — especially if it’s in a desirable location like a beach, downtown or next to amenities and tourist attractions. Of course, you’ll be renting out to many more people and dealing with more issues, but if you play your cards just right, you’ll make four times what you would renting to one tenant.

As you may have heard, the market for rent to own real estate is thriving, despite economic downturns and the mortgage meltdown. However, you may be wondering what sort of people choose houses for rent, and you may also be wondering if rent to own property is right for your needs.

One group that rent to buy homes appeal to is the first time buyers. Whether you’re just gotten married, are expecting your first child or are simply sick to death of living at home and/or renting, home ownership is a big step. Often times, young prospective buyers know full-well they could afford the monthly mortgage payments, but they have a hard time coming up with the $20,000 down payment. By choosing rent to own real estate, you can enjoy all the benefits of living in your dream house, without having to come up with the big lump sum (as an agreed upon portion of your rent will serve as a down payment over time).

A second group of people who may choose rent to own homes are victims of foreclosures. If you’ve lost your beautiful estate due to predatory lending or miscalculations, it can be agonizing to imagine moving your family into a small apartment. Starting over is always a daunting task, especially when your purchasing confidence has been shaken. You may have rushed into decisions before, so with a rent to own property, you can buy the necessary time to make the right decision. You’ll have five years to make sure the neighborhood is right and that the house isn’t going to be a money pit, all the while allowing your credit and the market time to heal.

A third group of people that rent to buy homes may have a steady stream of income but bad credit. Getting a mortgage these days is much tougher than it was before the housing bubble burst. If you’re not keen on paying outrageous interest rates or suffering the humiliation of finding your dream home only to find financing fall through, then lease purchase homes are the perfect alternative. Be aware that you’ll have to be smart about it and plan to have your credit repaired over the lease term (usually 3-5 years) so you’ll be eligible to buy the home later, but many people find this added time to be all they need.

If you have a handyman in the family, many rent to own homes that are “fixer uppers” will offer reduced down payment in exchange for work around the house. You can explore your passion for home renovation by redoing floors, electrical work, landscaping, updating rooms, carpeting, dry walling or plumbing — while paying less than a mortgage each month. You can also live in a house, rather than an apartment and watch the value of your home appreciate with all your hard work. At the end of your term, you’ll likely have a much better deal.

You saw the most beautiful home one Sunday afternoon. Your suburban dream-come-true home may have green grass, violets and tree-lined sidewalks. It may back up onto a wooded lot with a stream, where the kids can play. It may be everything you’ve ever wanted in a house — hardwood floors, marble countertops, vaulted ceilings and a breakfast bar. However, after moving you may find that there are miscreants prowling the neighborhood at night with roving packs of delinquents coming from the projects just around the block, or your adjacent wooded lot gets paved for an industrial building, depreciating the value of your home. Perhaps the plumbing or the ceiling weren’t as sound as you had anticipated. Perhaps the urban sprawl has reached your neighborhood and all of the nice neighbors have moved away. Perhaps you’re stuck in a 30-year-mortgage.

There is good news, though. Rent to own real estate is more plentiful than you may think and is a good way to buy some extra time in an uncertain market. During your initial rent to own property agreement period, you will pay a set price (usually just a little more than a conventional mortgage) and a stated portion of your rent will go toward paying the down payment. You can think of it as sort of a forced savings plan, in a way. This initial period usually lasts from three to five years. After this period, the tenant can purchase the home or leave the premises with no additional obligation.

Rent to own homes are a much safer buy because they buy you time. You get to know the neighborhood before getting “stuck,” you can discover any necessary repairs before buying, you won’t need to save up a massive down payment all at once or wait years to buy if you need a home now, and you can take this opportunity to repair your credit or build up savings rather than throwing all your money away to rent.

Isn’t it typical? You finally make up your mind to look at rent to own real estate and some naysayer comes along to fill your heart with fear. “They’re all scams! Don’t do it!” they may have cried. But if they’re all rip-offs, why are so many people doing it, you wonder? Of course there are right ways and wrong ways to do everything, whether you’re buying, purchasing or both. The reality is that rent to own real estate is a great solution for both buyers and sellers in this fickle market. There are certain precautions you can take that will ensure you a proper deal.

First of all, confirm ownership of the property to make sure the person you’re paying really does own the home. When dealing with “for sale by owner” rental houses, be sure that your real estate attorney has a good look at the contract because many of these people make mistakes, without even realizing it. If you’re working with a realtor, be sure that they specialize in rent to own property.

One of the biggest requirements for your contract should be to get the future purchase price of your home in writing. Before you sign, you will need this number locked in. Don’t feel pressured to rush. Sellers often try to create urgency by saying there are multiple bidders, even if there’s not. Don’t feel sheepish about taking your time to make an informed decision. If it’s not there in a few days, then it wasn’t meant to be. Also make it clear that you will need to consult legal council before finalizing.

Remember that some investors are willing to set you up with low monthly payments, but do the math on the mortgage to see if you can afford the payment at the end of the lease term. Some leasers forget to run the calculations and can’t afford the end lease purchase and lose their dream home at the end of the term. Also be aware that you will need approval for financing at the end of your time.

Do you live in St. Paul, Minneapolis near the Xcel Energy Center and want to make a few extra bucks? Do your civic duty and put your house up for rent for the first week of September! Journalists, prominent delegates and their families will be flooding town to discuss this historic election and they’ll need a place to stay for the duration of the convention. Rather than pay $200 or more per night for a cramped hotel, many representatives will be looking for houses for rent where they can rest comfortably. GOP Convention Strategies is currently looking for houses for rent to serve that very purpose.

Many clients of GOP Convention Strategies coming into town for the Republican National Convention have already expressed interest in staying in condos or houses for rent in the downtown or Cathedral Hill area from August 30 to September 5th. As a renter, you can go through a private company, which will make deposits, contracts and agreements easy. Of course, this is not a “get rich quick scheme,” but it could be a nice way to pay for a much-needed vacation, at the very least.

“Some of the major CEOs and executive directors of some of these national trade associations may want to stay in accommodations that they’re more used to staying in on a daily basis,” explains Ryan Kelly of Take08 Events firm. “That could be something like a stately manor up on Summit Avenue where you’ve got seven to 10 bedrooms. And almost packaged together as their own mini-hotel.” He adds that he’s already rented houses for anything from $4,000 – $40,000 for the week. However, for best results, it’s better to go through a firm to put up houses for rent, rather than try to Craigslist them, he cautions.

If you can’t sell your house, what do you do? Do you readjust your hopes and prices drastically? Do you hold to your target price and wait it out? Do you pull the house off the market for a few years? Few homeowners consider the idea of offering houses for rent, but with the sag in housing sales and the credit crunch making it tough for prospective buyers to get a mortgage, rent to own real estate is proving to be a wise option.

“I put more people into rentals last year than all my previous years in real estate combined,” said Jamie Hook, a realtor with Metro Brokers GMAC Real Estate. “I think the rental market is pretty good now. And I think we’ll see the rental market improve.”

If you’re moving, your best bet is to offer your home up for lease purchase so that the mortgage is partially subsidized for now. Later, when the market turns around, you can put that property back up for grabs. Renting is like a waiting room and a steady stream of supplementary income for the buyer who may have paid a little outside their means. We all make mistakes, but why should yours prevent you from living comfortably for years to come?

Market analysts suspect that the pool of renters will continue to grow faster than the pool of buyers, due in part because of the credit crunch. Many of the jobs being added to the economy are lower-paying service sector positions that is rapidly pushing the demand for rent to buy homes. It used to be that mortgages could be purchased for less than a month’s rent in some markets, but that’s not necessarily the case anymore. It’s also more and more difficult for new home buyers to save up for a massive down payment. Rent to own real estate eliminates the need for impeccable credit and big down payments for buyers.

“It’s a means of getting someone into a new home where they might not have an opportunity otherwise,” says Phil Upland, owner of Upland Development in Rochester.