Can We Rent To Own Or Lease Purchase?

One question I get more often than "Are we there yet" from the back seat is: "Can we rent to own or do a lease-purchase?" The answer is simple: Yes. You can rent-to-own (or in other words "lease-purchase"), but... is it wise?

I've been asked this question from every type of client- from those wanting to rent-to-own a $600/month cottage to those who want to lease purchase a $10,000/month luxury home. Wait, I take that back- I met with a family last week who wanted to lease a home for $25,000/month for one year and then purchase it.

Let's go back and ask ourselves, "Is it wise?" I have several words (actually paragraphs) of wisdom to share with you.

First, if you are one of the fortunate who is seeking to rent to own a high end luxury home, you should hire a professional who knows not just $600,000 luxury, but knows multi-million dollar luxury. You need a professional who knows the ins and outs of luxury rentals. You need a professional who knows how to negotiate and successfully close a rent to own or lease purchase transaction. You don't want to get stung.

Second, some rental properties or investment properties can actually be negotiated as a lease-purchase or rent-to-own even if they are not listed that way. However I would strongly recommend that you think (and discuss with a reputable professional) about a few things before you decide to "rent to own". i.e.:

(1) Prices are still fluctuating in our economy. So lease purchases are good if you are the buyer and the price goes up before you actually purchase or close on the home (because you are locked into a set purchase price). Lease-purchases or rent-to-own properties are bad for you as a buyer if the prices go down when you actually purchase (or close) the property (because you are locked into a set purchase price).

I've seen over the last 3 years- especially in the luxury market- lease purchases often go awry. Because no matter if you are the buyer or the seller in a lease purchase- since the price can and does fluctuate- one of you will lose and often times, the loss is big. There is no win-win in today’s market for lease-purchases- so tensions get high between the parties at time of close. I've seen buyers who put large earnest deposits down, lose the down payment because the home is worth so much less than when they went into contract, that the buyers just decide to walk away from their earnest deposit before the situation gets worse.

(2) Sellers who are willing to do a rent-to-own or lease-purchase (whichever you want to call it), are almost always asking more than the homes are worth or would appraise for. Because buyers think this is the way to go, they sometimes jump up and down for joy that they can find a home that they actually like and that the seller is willing to carry, but they don't realize that they are or might be paying far too much for the home - in rent and/or in purchase price. Sellers do this because they can. Sellers win in that situation far more often than buyers do.

(3) If the lease-purchase is for a short period of time (say a month or two) AND the home is valued AT or LOWER than market value, then it can be an okay decision to do so. If the lease-purchase is for a long period of time, it can be very risky - I've listed a couple of reasons for you above.

(4) Be careful of realtors who agree with you or encourage you to get into a lease-purchase or rent-to-own. We are taught as REALTORS that it's not about commission, it's about our client’s best interests- at least it should be. Talk with a professional who will give you sound advice.

Give me a call. I'll be happy to talk shop with you.

Can We Rent To Own Or Lease Purchase?