JSC
2006-05-26 16:26:17 UTC
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!
Here's how it works:
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:
1. 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.
2. 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.
3. 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.
Here's an example transaction:
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.
What's the catch?
Now you may be thinking, "OK, what's the catch? This sounds too good to
be true."
Answer, there is no catch, but there is RISK! Understand and follow
your contract to avoid any potential penalties.
There are many possible reasons a landlord/seller may want to enter
into a rent to own agreement. Some reasons may be:
Needs to maintain ownership for at least one year for tax purposes.
Unable to get a fair price due to local conditions.
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:
Build equity toward home ownership.
No bank or finance company involvement.
Poor credit history may not be an issue.
Learn more at http://www.jscinvestments.com/. You can also place FREE
wanted ads and FREE homes available ads for anywhere in the United
States. There is no obligation whatsoever.
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!
Here's how it works:
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:
1. 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.
2. 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.
3. 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.
Here's an example transaction:
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.
What's the catch?
Now you may be thinking, "OK, what's the catch? This sounds too good to
be true."
Answer, there is no catch, but there is RISK! Understand and follow
your contract to avoid any potential penalties.
There are many possible reasons a landlord/seller may want to enter
into a rent to own agreement. Some reasons may be:
Needs to maintain ownership for at least one year for tax purposes.
Unable to get a fair price due to local conditions.
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:
Build equity toward home ownership.
No bank or finance company involvement.
Poor credit history may not be an issue.
Learn more at http://www.jscinvestments.com/. You can also place FREE
wanted ads and FREE homes available ads for anywhere in the United
States. There is no obligation whatsoever.