Rent to Own--An old concept that can be dusted off for these troubled times

It is becoming clear that Baryy Frank;s vision of home ownership for everyone was, at best, a flawed concept. In the past five years, too many people "shoehorned" themselves into homes without a real awareness of the responsibilities of owning a home. Many of the short-sales and foreclosures we see today are a function of these "oversimplifications".

On the other hand, those of us who have been in real estate for an extended people are mindful of the benefits to the individuals, and their respective communities, of home ownership. That brings us to dusting off an old concept, "rent to own", as a viable alternative.

Rent to own can be handled in many different ways. Basically, rent to own permits the Tenant them advantageous opportunity of having a portion of his or her rent "set aside", if you will, into an escrow account that will, at some appointed time, be available for a down payment on the dwelling which is being rented, at a fixed or formula price. When I do rent to own, I suggest a three to five year term, and an allocation of 60% of the rent to be placed into the escrow. That amount can serve as a real incentive for the Tenant, and makes prompt payment of monthly rent (a requirement in my rent to own scenario) something which the Tenant has real motivation to fulfill.

At the end of the rent to own term, the Tenant makes an election. If she or she decides to go forward, the escrow is included in the purchase and sale agreement as the deposit on the purchase. I usually draft the P & S when I do the Lease, so there is not negotiating at a later time which could upset the deal.

For the Realtor setting up the rent to own, there should be two (2) commissions. There is a rental commission when the Lease is signed. There is also a sale commission when, and if, the purchase is completed. I have seen these "tail" commissions run from two to three per cent of the purchase price.