You've heard or read about it at some point, why just rent? Aren't you just throwing your money away? Yes, when 'just' renting that's true. It pays to be creative though and think outside the box. In theory, rent-to-own can be great for renters who want to become homeowners but don’t have the 20% down payment that conventional lenders require nowadays. So, why don’t more people go the rent-to-own route? (also referred to as lease option, lease purchase, lease to own, rent to buy...) Well, for one thing, rent-to-own properties are pretty hard to locate in many communities. They’re not common, and don’t fit well into typical property listings for sale or rent. You can look on Craigslist and you'll be lucky to find one or two of them posted. And neither is likely to be in your price range. If you do find a rent-to-own home or condo that’s perfect for you, there are other things to consider before signing on the dotted line. So, how do rent-to-own agreements actually work? Are they anything like a 12 month lease agreement for an apartment? Hardly.
There Are Two Types of Rent-to-Own Agreements and They're Mainly Differentiated by Their Flexibility:
1. Lease Agreement with Option to Purchase
This type of lease requires the tenant (referred to as a tenant-buyer in this instance) to pay an “option fee" of usually 3%-5% of the purchase price (sure beats a 20% down payment a traditional lender would require) also referred to as an 'option consideration fee' for the right to purchase a particular property at a later date in the future, say 18-24 months. If the tenant-buyer decides to exercise that option, the seller is required to sell the property to the tenant for the agreed upon price when the contract was initially signed and apply the option consideration fee to the purchase price. So, to keep it simple for this example, if the tenant-buyer put down $6000 on a $100,000 property, that $6000 is credited towards the purchase price so you're now down to $94,000. But, if the tenant-buyer chooses not to exercise that option to purchase that home, they forfeit the $6000 option consideration money. So as a tenant-buyer, you want to make sure the house you fall in love with is still the house you want to but 18-24 months down the road.
Option fees are generally a percentage of the purchase price (on average, anywhere from 3% or more) of the purchase price. If a tenant-buyer doesn’t have the necessary cash on hand, sometimes other assets, such as collateral might be a viable option.
Many people have blemished credit for one reason or another from their past. This doesn't make them a bad person, or an irresponsible person, it just makes it more difficult for them to attain funding or make certain purchases. If they happen to have a good income though, but their credit is not up to par, this opens more doors for them until they can get their credit situation squared away, which usually takes at least a year on average if they buckle down.
2. Lease Agreement with Purchase Agreement
The second agreement is a lease plus a purchase agreement. Both parties agree on a fixed purchase price, or agree the purchase price will be determined with a future appraisal, as well as the future closing date. Everything’s set from the beginning similar to a lease option, or rent-to-own, as described in #1 earlier.
Many veteran real estate investors believe this type of agreement is often the better option, especially when dealing with Realtors. Most agents are more familiar with the paperwork and understand better than using an option contract. Most Realtors aren't trained on creative methods of financing, they're only knowledgeable with the cookie-cutter inside-the-box conventional financing. With this method, the money given is considered an earnest money deposit and is refundable, in most circumstances, just like a traditional transaction.
How do you decide between a fixed price or a future appraisal price on the property of your dreams? Experts will tell you it depends on the market. In a rising market, a fixed price will allow you to have equity in the home even before making the purchase. In a flat market, like we generally have in the Lansing area, it's going to take some negotiating. But it's probably wise to get a recent comparable analysis of similar properties that have sold in the nearby area, or spring for an appraisal for a couple hundred dollars out of pocket for your peace of mind before you sign on that dotted line.
If you have blemished credit repair work that needs to be straightened out the seller will generally 'owner finance' your acquisition for a time period in the future of 18-24 months until you can qualify for traditional financing and cash him out.
Where Do Your Lease to Own Payments Go?
Ok, you ready for some good news? If you’ve ever 'just rented' before, you know your monthly payment just goes down the drain and supports your landlords lavish lifestyle. Whereas, lease-to-own offers an additional benefit in the form of rent credits. Rent credits apply a percentage of your monthly rent to the purchase price of the home. Read that sentence again.
Let's use that $100,000 priced home we used earlier a few paragraphs up as an example, ok? So, the price of the home is $100,000, you paid a $6000 option consideration fee to get into the house and lease it for 24 months. Now, the landlord-owner agrees to apply a percentage of your $1,500 monthly rent payment throughout your two-year lease agreement as a rent credit towards the purchase price of the home. So, let's say every month you pay on time he'll credit you $300 towards the purchase price in 24 months. . Let's do some quick math: You're lease-buying the house for $100,000 for 24 months. You put down $6000 as an option to purchase fee, which is applied to the agreed upon $100,000 price, which knocks it down to $94,000. Now, if you pay on time every month for 24 months, the landlord-owner has agreed to credit you $300 each month towards the property. $300/mo x 24 months = $7,200. Take that $7,200 rent credit money and subtract that from the $94,000 sale price and you're looking at $86,800 now to buy the house.
You’ve been able to build equity while leasing-to-own a house and the owner-landlord has added security you’ll follow through with the agreement when the lease is up in 24 months when your credit is all shined up.
Now, there is always a catch and here it is: if the 24 months come up and you haven't been able to get your credit straightened out, your lease is up. So, either you move out and forfeit all your money (and equity you built in the 24 months), or, you can renegotiate with the owner-landlord and put down another sum of option consideration money for down payment of 3%+ and agree to another lease term, usually no more than 12 months, and pick up where you left off.
Who Handles the Repairs and Maintenance
In a traditional tenant/landlord relationship, maintenance and any repairs fall solely on the shoulders of the landlord when renting the regular way. It's a different animal when you decide to rent-to-own a property. After all, you intend on buying the property at some point in the forseeable future so for all practical purposes you are the homeowner (except on the deed). Your rent-to-own agreement should clearly outline who is responsible for what, but it’s common for small repairs, (anything under $350) and regular upkeep and maintenance to be the responsibility of the tenant-buyer, and large repairs (anything over $350 per occurrence) to remain in the hands of the landlord-seller.
Who Benefits When Renting-to-Own?
It pays to be creative. Rent-to-own can be a win-win for all parties involved. The seller/owner/landlord get their property occupied with monthly cash flow to a desirable tenant-buyer, and still gets the tax benefits. The typical renter who benefits from renting-to-own is someone who does not have the significant cash on hand at present for a traditional down payment required by a conventional lender, or for whatever reason isn’t able to obtain financing, and get's into a house they want to eventually buy for just a fraction of what it would cost if they went the conventional route, usually through a real estate agent. Rent-to-own can also benefit the seller in that any potential capital gains taxes are mostly deferred, if the property is an investment property. Additionally, as long as the owner-landlord's name is on title until the tenant-buyer cashes him/her out, he/she continues to write off the property on their yearly taxes. Inquire with your tax person for more info.
Now that you have a better understanding how rent-to-own, or lease-to-own, or lease option, works, it’s time to set your sights on the possibility of homeownership. Interest rates are low right now. The question is, will they still be low 24 months from now? Nobody knows for sure but with the right rent-to-own opportunity, you could be a property owner sooner than you may think.
We have lease option 2-3-4 bedroom properties available throughout mid-Michigan in different price ranges to help you realize your dream of home ownership. Contact us for more information.
To those who stop by here and wonder why there hasn't been any new blog updates recently...well, actually there has been 2 lengthy blog posts, one in May and one in early July but I lost my internet connection when I went to post it and lost EVERYTHING that was meant to be posted. A couple hours I'll never get back. Very frustrating.
So to remedy that from happening again, right now I'm too aggravated, but I will write up the article offline first then copy/paste it from there to here.
Damn, I really hate when that happens. Once in a great while still sucks, but when it happens twice in a row wasting a couple hours of my time, then shame on me for putting so much faith in technology and getting some sand kicked in my face again.
I'll be adding some value on how to sell your Lansing house fast right now as soon as I can squeeze in an extra 30 min so please come on back.
I just wanted to let you know the scoop. Thx for your understanding and patience.
We'll often get asked "what do you guys do with the houses you end up buying?"
My answer is "it all depends, really, on a host of factors."
So what are those 'host of factors' you ask?
When we purchase a distressed property we generally know before we even buy it what our plans are once the transaction is completed and it'll usually fall into one of four areas:
1) We'll purchase it to fix-n-flip it and resell it retail outright or as a lease option
2) We'll fix it up and rent it out
3) We'll sell it as-is to another investor and let him deal with the contractors.
4) or we'll consider renting-to-own it
In most cases, depending on our holding costs, the neighborhood, the amount of repairs required before it's move-in ready, how many bedrooms/bathrooms, basement, what are the current rental rates in the area, is the area mostly rentals or homeowners, etc helps us determine if we rent it out or sell it or lease it out as a lease option.
I'll discuss lease options and rent to own homes with bad credit in my next post.
Renting a House
For the sake of this post let's assume we're going to fix up the house and find a renter to pay the market value of what the house would generally rent for.
Can just anybody rent a house from us? Absolutely not.
We're going to want to make sure we have a mutual understanding beforehand and will ask you many questions before we decide to rent to you. We don't want one of our rental properties turning into a neighborhood crack house because of who you hang out with. Be honest and forthright because we will run a background check. We'd rather have a property stay vacant than rent it out to just anybody and end up with a problem tenant later on.
Some questions we're bound to ask you to qualify you are:
1) Are you currently working? If so, where and how long have you worked there?
2) Do you have reliable transportation? If so, what is your transportation?
3) What are your monthly expenses? Be forthright because we will check.
4) Can you afford the security deposit w/ no problem?
5) Have you ever been arrested? If so, what for?
6) Are you currently involved with any legal situation right now? If so, what is it?
7) Do you have any children? If so, what ages?
8) Do you have any pets? If so, what kind?
We are pet lovers ourselves and have no problem with pets as long as we know beforehand. We don't care for surprises only to find out later a tenant never told us and gets a rottweiler that gets no attention, no exercise or no discipline. and ends up tearing up the house and yard - understandably - only to just be tied up in the yard and barks incessantly. No neighbor wants to put up with that. So many people have NO clue how to raise a pet and it ends up becoming a burden and a nuisance. We see it time and time again. Before you get a pet get a clue.
Rent Homes in Michigan
So, what does take to rent a home in Michigan from us?
You'll need to have steady employment. Reliable transportation. A good rental history. A security deposit. Your rent generally can't be more than 1/4 of your income. All these are vital to us before we decide to rent a home to you.
Once we decide to rent a home to you you can be assured you'll get a clean, safe place you can call home and we'll do our best to make sure you're squared away if there is anything you need.
So you've finally decided to sell your house. After many sleepless nights tossing and turning unable to shut your brain off you've decided 'this is it, I'm ready to move on.'
You're ready for greener pastures.
Not so fast, just yet...
You need a plan first, right?
You need to jot down some questions and get some answers before you make a phone call to a cash investor wanting to buy your property.
Some questions such as:
-Is your house a distressed property? Does it need a bunch of repairs and you're in no financial position to, nor do you want to deal with it? Or is it generally in good condition and just needs some updating?
-What are you going to do once you sell? Pay off bills and be debt free? Want to move to someplace where it's warm like Florida?
-Where do you want to go? What's keeping you here? Family? Friends? Nobody?
-How much do you need? What do you have to have to get a fresh start? A new place to live? Moving expenses? Downtime till you land another job.
-How soon do you need to sell? ASAP? No hurry, time isn't a factor?
-What do you need to do beforehand? What loose ends do you need to get squared away first before you uproot? Do you need to have a yard sale to raise some cash and get rid of some of your stuff?
-How much do you owe? Is your property paid off or do you still owe on it? That'll affect the offer a cash investor gives you.
-Is there any liens on the property that you forgot about? A city lien? A contractor lien? If so, how much?
-Is your property in selling condition? (with a cash buyer that's not necessary)
Got your list together? Answers to your questions? Good, because you don't want to fly blind. Pilots use instruments to get to destinations, builders use blueprints when building a structure. Just as you need to have an outline on what your Plan B is once you sell your distressed property to a cash investor.
Unlike the traditional way of selling a house through a real estate agent whereas you might have 6 months to get ready being it might take that long for an agent to find a buyer who is qualified for a bank loan, termite inspections, water inspections, heating/cooling inspections, electrical inspections (generally an overall property inspection top to bottom), whereas with a cash buyer 30 days at the most (often less) and you need to be ready to exit the premises (unless prior arrangements have been made with the cash buyer).
Things move much faster with a cash buyer, in a matter of weeks versus several months with an agent. So you need to be ready and have your 'ducks-in-a-row'.
Sell My House for Cash Now
So you sit down and Google 'sell my house for cash now' seeking out some cash investor to make you an offer.
One thing to keep in mind is you'll generally get much less for your distressed property with cash but you'll be done with it and can move on much sooner, whereas, with 'selling with terms' such as on a land contract you'll get a better price but it'll be down the road a ways, as in 5-7 years down the road.
A cash investor will follow-up with you over the phone and ask you a bunch of questions before he makes a trip out to your house. He's generally not going to just throw out some random number to you without doing some due diligence first, usually online.
There is different software programs and websites a cash home buyer investor will check out that will tell him what the property taxes are, the fair market value, the surrounding properties for sale, how long they've been for sale, the overall neighborhood in general, the amount of foreclosures in the area (which affect property values), the crime rate, etc.
All the above due diligence, and then some, will give the cash investor (like us) a snapshot of whether your particular property is actually something they'll want to pursue further. If that's the case, they'll set up an appointment to walk-through the property, take some photos, measurements, etc and probably make you a cash offer depending on all those factors he's previously researched before coming out to your house.
Or, after all the due diligence, quite possibly your distressed property in Charlotte, or wherever town you are, doesn't meet the investors criteria for one reason or another and they'll pass on it.
Cash for My House
Here's a newsflash for ya:
If you really think a cash investor is going to whip out his checkbook and pay you the price you think your distressed home is worth, you're sadly mistaken.
There is a rare exception to that but it is very rare.
The reality is no cash investor will pay you the retail value of your home. Very, very, very rarely will you even get fair market value for your home from a cash buyer. A cash buyer is buying your home 'as-is' and there is way too many variables that can spring up costing thousands of dollars once the paperwork is signed and it's a done deal and you're on down the road riding into the sunset with pockets full of cash.
-holding costs. It might take months before the house is cleaned up, rented or sold.
-mechanicals. The furnace might go haywire, costing $1000's.
-septic system. Might need to be replaced. Costing $1000's
-foundation issues. BIG buck$ to take care of especially if heavy equipment is brought in
-roof. Could very well need replacing. Cost: $1000's
-infestation. Termites, Bed bugs. You name it.
-mold issues. Again BIG buck$.
-code violations. Red tape = delays = $
The above list is just a general smidgen of expensive repairs that could get very costly and need to be figured in when making a cash offer to a seller.
There are so many things that could possibly be very costly that are hidden beneath the surface and not seen by the naked eye that a cash investor has to figure in his offer to you-just in case-when he makes you an as-is cash offer. Especially on an older home.
If you're looking to get the maximum price for your home, then you want a real estate agent, not a cash buyer. Just be prepared for the long haul instead of a quick exit to your fresh new start on life riding into the sunset you'd have with a cash buyer.
Do You Need to Sell an Old House?
Something about an old house that's appealing for many reasons. Long gone are the good old days when houses were built with character and beautiful woodwork.
Houses back then were built with windows on all four sides, unlike so many houses today. What's up with that anyways? Two sides of a house with no windows? It looks terrible.
Old houses have that balanced look. Windows on all four sides the way it should be. Character inside and out. Big trees in the yard providing shade for the house for years and years.
Sadly, they don't build houses like that anymore.
We Buy Old Houses!
Maybe you think you have an old, ugly house and it's in dire need of repairs and you just don't want to put the money into it or are unable to.
If your old house is in distress and needs many repairs most real estate agents aren't going to put very much effort, if any, into selling it for you. They might stick a sign in the yard, put it up on the MLS and leave it at that. That'll be the extent of their marketing for 90% of them.
Listing with an agent is not a good option in your situation.
If you want a quick sale versus a long drawn out selling process that might take 6 months or more through a traditional real estate agent who only knows conventional financing and retail buyers, give us a jingle as your Plan B.
We'll assess your property situation, take it as-is so you won't need to make any repairs or spend any money, we'll pay you cash, take care of all the closing costs, and we can close quickly. We buy houses fast if it meets our needs and will offer you a fair price.
Is that old house weighing you down like your lugging around a sack of boat anchors? Unload that financial back breaker and give yourself a fresh start. We're here to help if you need us. Give us a call at 517.827.5411 or go to the home page and fill out the property information form and we'll be in touch within 24-48 hours.
You wake up to the sound of water dripping from your ceiling. The bucket you placed in the middle of the floor before you went to bed last night is now overflowing thanks to the all night rainstorm and now water is running all over your bedroom floor.
And your slippers are soaked.
Just another day in paradise, right? No, not by a long shot.
Your house has become a major financial burden on you and you're just flat out sick of it bleeding your paycheck every month.
"If it isn't one thing it's another with this place" you say to yourself as you shuffle out of bed and tip-toe into the dry hallway into your kitchen.
You gaze out the kitchen window waiting for your coffee to heat up and it's another gray, gloomy, wet, cloudy day in Michigan wintertime.
"I need a change" you tell yourself. "I want to get out of dodge and go someplace warm and sunny. But I have this ugly house with all these problems that need fixing and I'm stuck here I'm afraid."
But are you really? What are your options when you own a property that has what seems like a million things wrong with it and you just don't have the funds to keep dumping into it, or you're just at that point where you say "enough is enough!"
A water damaged property is the least of your problems right now but you already know that. Here's what Wikipedia.org says about water damage to your house just so you know what the facts are.
"How do I sell my house fast to a cash buyer so I can get a fresh start out in New Mexico where it's warm and the sun shines 300 days a year?" is your thoughts as you sip that cup of java while listening to the water dripping from the ceiling into your soaked carpet in the living room. "This really sucks" you tell yourself, "I deserve better than this."
As the owner of a problem property that is constantly in need of costly repairs you're probably at your wits end. And understandably so.
Here's the options you're looking at if you're at that point where 'enough is enough':
(2.) You can list your house with a real estate agent and pay them a 6% commission out of the final selling price. And they'll want try to lock you into as long of a sales contract as possible, 6+ months or even longer. If they can't sell it within
90 days then you have the wrong agent.
(3) Another option you have is you can sell your property as-is via auction. You'll still have to spend a bunch of money marketing your distressed house if you decide to do it yourself to drum up a bidding frenzy.
(4). Your last option is to sell your house fast to someone like us, a cash buyer. There are some advantages and disadvantages going this route as well depending on your circumstances.