Rent-to-Own Homes: How the Process Works

If you want to buy a home or an apartment for investing point of view. To buy a new home, you need a good credit score and cash for down payment. Without the ample of money, you cannot buy a new home. This route is tough for you if your credit score is low.

There is an alternative way to own a new home. A rent-to-own agreement, is an agreement in which you rent a home for a certain amount of time, with the option to purchase it before the lease expires. Rent-to-own agreements has two parts:

• A standard lease agreement.
• An option to buy.

We will discuss below the whole process of rent-to-own agreement. It is less tough as compared to simple renting and buying. For this you have to take some extra precautions to protect your interest. By taking precautions, you will get to know whether the deal is good for you or not.

You Need to Pay Attention on Option Fee

In a rent-to-own agreement, you as the buyer has to pay one-time fee to seller. This fee is usually non-refundable and upfront called the option fee, or option consideration. This fee will give you the option to buy the house in the future. The option fee is generally negotiable. You can negotiate the fee with your agent and go with the option that suits you

Read the Contract Carefully

There are two different things in the contract. Some contracts have Lease Option while some have Lease Purchase. These are types of rent-to-own agreement.

The lease - option contract gives you the right, but not the obligation, to buy the home when the lease expires. If you do not want to buy the property at the end of the lease, the option simply expires. You can leave the buying option without any obligation to continue paying rent or to buy.

Lease-purchase contract gives you some legal obligations at the end of the lease. It does not matter you can afford it or not. You cannot walk away without buying the home after the expiry of lease.

Purchase Price

Rent-to-own agreements should specifically clear in providing you knowledge about when and how the home’s purchase price is determined. Sometimes, you and the seller will agree on a purchase price when the contract is signed even at a higher price than the current market value. While in some other situations the price is determined when the lease expires, based on the property's current market value.

Know What Your Rent Buys

You will have to pay rent throughout the lease time. The dilemma is whether a portion of each payment is applied to the eventual purchase price or not. Most of the often, the rent is slightly higher than the going rate for the villa to make up for the rent credit you receive.

Maintenance: It might not be like Renting

You may be responsible for maintenance of the property and paying for repairs. It depends on the contract. Generally, the maintenance and repair are the landlord's responsibility. So, read the copy of your contract keenly. Eventually, the sellers are responsible for any Home Owner Association HOA fees, taxes and insurance. Landlords typically choose the high fee to cover these costs. Make yourself sure that the repair and maintenance requirements are clearly mentioned in the contract.  

Buying the Property

What happens to your property, it partly depends on which type of agreement you signed. I have mentioned above, the two options: Lease option contract and Lease purchase contract. If you have selected a lease-option contract and now you want to buy the property, you will most probably need to obtain a mortgage in order to pay the seller the full amount. In this case you do not have to buy the house. Here you are unable to secure financing by the end of the lease term. 

 If you have selected the Lease purchase contract the results will be vice versa.

Tenant Nightmare Stories That Are Actually True

You may know what nightmares are. But what you might not be able to know about the tenant nightmares until you become a landlord. The tenant nightmares can prove to be even worse the than nightmares we know. While may tend to think that you can screen the tenants and avoid anything bad from the side of tenants. Well, this is not always the case. When you buy a rental property, you sometimes get the tenants already living there. And those tenants may be less than ideal ones. You probably have guessed what I am talking about when I said less than ideal.

Now, a few nightmare stories are worth describing here.

1. A couple used to argue with each other every day and they had the habit of putting off their anger on the doors. The doors got broken from the hinges.
2. A drunk tenant left the water running in the sink upstairs and then passed out. The water eventually ran downstairs.
3. A drunken tenant bumped into the gas stove and turned the gas on before passing out. Another tenant called the utility company after smelling the gas. The utility company turned off the gas to entire building, leading to the panicking for all of the tenants and, of course, the landlord.
4. It may sound unbelievable but some tenants were selling cars in the backyard of the house they rented.
5. A landlord shared his story about renting out his property to someone who turned out to be a hoarder. Hoarders have the tradition of leaving everything behind in a mess.
6. Another tenant starting using stove for the heating after the heater went out. They were of the opinion that they did not want to bother the landlords.
7. A woman seemed to have fun shooting outside the window.

Do you want to be a landlord?

The purpose of telling these stories is not to discourage you from this mode of real estate investment. Remember, being a landlord can bring you the profit in pretty ideal manner. You just have to make sure that you are always ready to deal with any kind of situation. Without proper vigilance and proactive approach, you may not be able to cope with the pressure that messy tenants can cause.

In the end, you have to keep the fact in mind that every nightmare of a business can serve as a learning curve for you. while you are dealing with the bad situation, you automatically learn the things which are essential for you to learn if you are willing to earn bigger through real estate.