Has anyone ever handled or have done a lease with an option to own? I would like to find out more information about this, I do feel that this will become more and more popular.
In Queens NY, I see properties getting listed every day and the inventory growing so quickly these days and it will take many months to sell off what is existing right now. Many sellers are still holding onto the thought of higher prices and not adjusting as needed, quickly enough. So there are alot of homes that have been sitting on the market for more than 90 days, and with reports of the market declining by 15 - 20% each month there is little hope for the investors who bought with the intention to flip and sell. So what do you do if you bought a property with thoughts of flipping and got caught holding the hot potato?
You hold on to it! No, this is not a joke. Right now we are in the rental high again. The apartments that are out there are renting and we are showing signs of rent increases. Instead of selling your property at a loss, think about renting it out. If you sign a year lease and providing you did a tenant check, then the rent coming in can and will sustain you. You can use the rental money that you collect monthly to pay your mortgage, taxes and home owners insurance and at least you won't be shelling out the money out of your pocket each month.
Another tactic that I do see coming into play again is the "renting with an option to buy". This is a win win situation for the landlord and the tenant. As the landlord when you enter into this agreement there are a few things that will ease your mind.
* Tenant will have a true commitment - They will pay their rent on time because there is a bigger picture and they don't want to lose what they are working for.
*Tenant will keep and treat their home as their own from day one. They will do (should be noted in agreement) minor repairs and tasks that need to be done to maintain their home.
*At the end of the lease, you do not have to put your home up for sale - you could already have your buyer.
There are many ways to draw up this agreement, (I do suggest that you have an attorney draw up the documents) and there are many factors to consider before you enter into this kind of agreement.
*Market value and day of signing - this is a price of the home value at the lease signing. You predetermine with the tenant what the fair market value is at that time and that is the price you are getting. If the market skyrockets again - it is not easy to re-negotiate after the fact. IF the market severely declines then I am sure the tenant will have a clause about over paying. Again, this is an issue that an attorney will iron out.
*Is the down payment being factored in? The landlord can have a rental amount as well as the partial down payment that he could be collecting. If the deal goes sour, I am sure that the landlord gets to keep the down payment, or at least a substantial amount. (Attorney needed to iron out).
Some other issues that need an attorney:
*What are the terms? Is there a large amount due from the tenant at the end of the agreement? Is the money being held for down payment in a non-baring interest account? Does the landlord or tenant have 30,60 or 90 days to cancel contract once the lease is over? How many days after lease termination does the closing need to transpire?
Christine Forgione - Associate Broker
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A friend of mine in Jersey has been saying the same thing Christine. Until this year he had never written a lease-purchase. It is now November and he has now had 6 of them. In that kind of market they will become popular.