There are 3 words that will stop your Realtor in their tracks, and quite possibly your attorney. RENT TO OWN.
Overly dramatic? Let’s pull back the curtain on this very complicated transaction and you decide.
First, let me start off by saying, these are absolutely possible provided both buyer/renter and seller have well outlined expectations and solid legal, financial and real estate advice. Next, please note I am not an attorney nor a financial planner or lender. I am a REALTOR and this information is for general transaction purposes.
So with that disclosure covered. Yes you can do this. But first things first:
- Price – Is the price buyer & seller have agreed upon is that good for today? or is that the price in a year when the “rental” period is done and you’re buying? What happens if prices jump up in your neighborhood 10%? Or even worse drop 10%? Who absorbs that impact? If values go up and the price does too, what happens if the buyer can no longer afford that house?
- If the buyer is getting a loan (talk to your lender stat), how much of the monthly rental will be applied towards their down payment? Lenders do have certain tolerances on this, so be careful. What happens if the buyer cancels the escrow during the rental period? Do they get that money back?
- Who holds the money paid every month? If the seller, will that accounting be enough to satisfy your lender? If it’s title, is there a fee? If there is a fee, who pays?
- What happens if the buyer is getting a loan, but the house doesn’t appraise? Do they have to move out right away? Will the seller be willing to wait until prices come up? Will the seller adjust price?
- If the buyer takes possession today as a tenant, but doesn’t purchase the home until next year consider it like a very very long test drive. If the buyer doesn’t like the house & cancels the purchase, do they have to move out or is the lease still good?
- Under the same tenant scenario as #4, who makes repairs to the property if something breaks during the time the tenant is leasing the property. If the item in need of repair is major, will that be credited to the buyer or could the price increase if the seller fixes?
Yes, these are more questions than answers. Think of it as your getting started list. Your attorney or CPA or lender may have even more questions or thoughts. Important things to know, there are actually two transactions in rent to own. You have a lease and a purchase. Both can be seamless and go well on their own, and they can also be crazy…on their own. Together?!? Well, I believe you get the idea.