Rent to Own Gettysburg PA Real Estate

On January 18, 2011, in Uncategorized, by David Monsour

Realtors, myself included, tend to cringe when we are asked about “rent to own.”  The idea of “rent to own” isn’t the fundamental problem.  The problem is dealing with all the logistics of creating a situation that is fair for both parties.  Let me explain this further.  When a seller enters into a rent to own contract they put themselves in a situation where a lease is in place with a defined deadline for the option to buy (or agreed price to pay at the end of the term).  This effectively means that the property is tied up for the rent to own term, which is typically 5 years but can vary.  This puts the owner in a situation that limits what he/she can do with the property for that period of time.  An outright sale would result in a payoff in about 2 months versus 5 years for a “rent to own.” 

There is risk involved for the buyer as well.  Most rent to own contracts will require a decent sized non-refundable deposit.  Perhaps 5% or more.  The rent will also be higher with some portion of then rent going toward the “own” portion of the agreement.  This contract will also have some sort of terms detailing the purchase price at the end of the rental period.  Perhaps the price was determined prior to the agreement or the price will be appraised value at the end of 5 years.  If the buyer is unable to afford the purchase price or has failed to fix their credit problems they still can’t purchase the house and risk losing the deposit.  I mention credit problems because most people looking for “rent to own” have less than desirable credit – not always.  

How the current real estate market is effecting “rent to own.”  Above I mentioned a pre-negotiated price in the “rent to own” agreement.  The problem with the pre-negotiated price is that prices are currently trending downward which could result in a large difference between agreed upon price and market value.  This could make it challenging to get a loan.  The typical argument, “but I’ve been paying extra and what about my 5% down?”  Understood but falling prices even at a .5% a month could easily eat away any equity you would toward the purchase.  Now the seller may want to avoid selling for appraised value because it may be much less than the agreed upon value 5 years prior.  These are the types of obstacles that have to be overcome to successfully come to an agreement on a “rent to own.”

So you see there are a lot of things to consider when seeking a “rent to own.”   If you have further questions or would like to discuss this further feel free to call at 717-319-3408 or email at David.Monsour@gmail.com

 

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