We all know the economy is making it tough for consumers to purchase new homes. We also know that many people trying to sell cannot due to declining values. They purchased the home with virtually no equity and now are stuck with a home with negative equity. They lose their job and then have no alternative but to try to sell short....go into foreclosure or to lease out the property with hopes of holding on to it until property values go up. The trouble with renting property is that in my area most rentals cannot even command enough to pay the operating expenses that it takes to hold the property.
Then there is the rent to own option.This was a good idea a few years ago but in my opinion there are major risks involved if it doesnt have a happy ending. It's had to write an option contract with a price in mind when property values continue to decrease monthly. I currently own a property with two partners of mine. When we purchased the property we paid cash and spent a lot to renovate it.
We had bought approximately 15 properties within that year and renovated most of them and sold them. We had a few that we held onto for a few years and rented them out and eventually sold them just as the market started turn downward. We were lucky. The property we currently own is worth less than what we paid for it but we don't have a mortgage on it. We tried to sell it 6 times but every-time we tried to close on it....the buyer couldn't get a mortgage.
The buyers agent didn't do their homework and we tried to give them 6 opportunities to qualify. We even tried to send them to a mortgage broker we knew pretty well just to see if they really could afford to buy the home. Not only were they capable of purchasing the home.....the mortgage broker was able to repair their credit enough to qualify. For some reason....the buyers had some sort of issue with their agent and walked away from the deal. To this day......I'm not sure what happened other than the fact that we gave them many chances and tried to help point them into the right direction. Apparently they weren't grateful enough to even thank us and we weren't even their agent.
How many chances do you give people?
Eventually we decided to lease out the property. My partner thought that by offering an rent to own option....it would attract someone with an incentive to but the property a year later in hopes that they would be able to achieve financing when the smoke cleared.
I was never confident that the tenant would ever qualify for a mortgage and I never thought they would sign the option....I was right....they never did and they still live in the property but at a reduced rent.
We ended up finding a tenant who was willing to sign a deal with us to lease the property. I never liked the idea of the rent to own option. In my opinion there are too many risks for both the owner and the tenant. Too many problems with financing and or future pricing for example. But if you find the right situation ....it could work out as well and have a happy ending.
Which ever way you decide to go...just make sure you do your homework first.
I'm not going to discuss those risks in this blog post. You can read it below.
The Sun Sentinel recently posted an interesting article on this subject...you can read more about the negatives and the positives>>>HERE.
For more information please contact Neal The Real Deal Bloom
-Realtor® /RE/MAX Premier Associates.
2500 Weston Road ,Suite 103
Weston FL 33331
(954)608-5556
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