There is not a week that goes by that I don't receive a call from someone wanting to know about "rent to own" properties. After working with several clients to obtain this type of property, I have developed the following steps that MUST be taken to ensure a successful transaction.
1) Do NOT lock in the sales price of the property upfront. Of course, the seller is going to want to force this issue, but it makes no sense to establish the sales price in rapidly changing markets. After all, many markets around the country are still declining!
2) Make sure the contract includes the right of first refusal. Again, this is just added protection for the tenant. You don't want to end up in a situation where the house has literally been sold from under you to another Buyer!
3)CONTACT A LENDER UPFRONT! This ties in very closely with number 5. Renters, you need to know where you are starting from and what steps are required to get to that magical PRE-APPROVAL letter. A good lender will be able to tell you your current credit score, what score you need to buy a home and what steps must be completed. AND, if they think you are serious they will make it a point to follow up with you every 60-90 days or so to make sure you are on the right path. Credit repair is not difficult, it just takes consistency and perseverance. So, put the time in now to make sure you can reach your desired outcome. 12 months goes by really fast!
4) Make sure you understand all the terms of the entire agreement! For example, some owners will credit a portion of the monthly rental back to the Buyer at the end of the lease. Some owners will offer other incentives to the Buyer for following through with the transaction. And still other sellers will include stiff penalties for failing to go through with the transaction. If you need to, have an attorney review the agreement BEFORE you sign!
5) Most important of all! REPAIR YOUR CREDIT! Most individuals that are seeking a rent to own situation are doing so as a result of credit issues. I have lost count of the number of renters that I have worked with that spend the ENTIRE 12 MONTH rental doing ABSOLUTELY NOTHING about their credit! HELLO.....if you are serious about buying at the end of the lease, you better make sure to put yourself in a position to buy! I am always amazed at the number of people that find themselves in this very predicament! Sure, I know we all have hectic, busy lives, but we all need somewhere to live, right? Right! For those renters that fail to repair their credit enough to buy, they will most likely be looking at losing their ENTIRE deposit AND an increase in rent from the prior year.
Hopefully, this provides some clarity on an often misunderstood topic! Best Wishes!
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