Rent-to-own isn't always a quick fix

Daily Record (Rochester, NY), Apr 4, 2008 by Danielle Derringer

For homeowners who are having trouble selling, rent-to-own may seem like a good option; however, local professionals say this is not a strong trend in our area, nor a solution to the problem.

Jim Ledsome of Re/Max Plus in Rochester said rent-to-owns are basically a land lease, which is good for the seller, but not so good for the buyer.

"The buyer agrees to pay an agreed mortgage for a specified time and the title won't transfer until all required payments are made," Ledsome said. "Should the buyer decide they don't want the property they can't sell it or rent it to anyone else and the seller is free to find another [tenant/buyer]."

Ledsome also said he rarely works with clients interested in rent- to-owns.

"Anyone who has the money is going to legitimately be able to buy a home," he said.

Rob Reimer, an agent with Nothnagle Realtors said when he deals with clients who are looking into rent-to-own, he suggests a purchase offer with a pre-move in agreement in the form of a lease.

He said this method works well when someone is interested in a specific property but unable to get financing.

"Maybe their credit score isn't quite high enough or they're a bit short on down payments or closing cost requirements," Reimer said. "I have worked with several clients in this situation in the past."

If the seller is patient, Reimer will write a purchase offer and post-date the closing for nine months to a year, giving the tenant/ buyer an opportunity to qualify for financing.

"In order to make the purchase offer work you have to make sure that the buyer's financing problems are curable," Reimer noted.

He also suggested including certain clauses in the purchase agreement to protect sellers.

"Very often what I've done is set up a lease agreement that sets a certain portion of the lease aside for an escrow account that will go toward the purchase of the property," he said. "If the monthly rent is $1,000, the landlord might agree to take $200 out of each month's rent that the buyer will be able to use later. The tenants will usually take better care of the property and use the saved money as an incentive to purchase the home."

When it comes to using rent-to-own as a way to buy a house, however, Reimer cautioned that in the Rochester market, properties that do not attract buyers are often overpriced or in poor condition.

Realtor Magazine recommends asking these questions before considering a rent-to-own.

For Sellers

* Who will tend to the property and pay for routine maintenance?

* Who pays for major repairs?

* What are the costs of setting up and managing an escrow account for the portion of rent allotted to the down payment?

* Will you manage the property yourself, or hire an agent?

* What if the renters change their minds? Who keeps the money in the escrow account?

* If the buyers change their minds, what will be required to put the property back on the market?

For Buyers

* How much of the rent is going to the down payment?

* How locked in are you if you change your mind? What will it cost to get out of the deal?

* How long will it take to accumulate enough of a down payment that you are likely to qualify for a mortgage?

* What happens if you don't qualify for a mortgage by the specified deadline?

* Who will be responsible for routine maintenance?

* Who will pay for major repairs?

For more information visit www.remax-plus-ny.com, www.nothnagle.com or www.realtor.org.