Have you ever been the renter/buyer in a "rent with option to buy" arrangement?

[gaillardia]

Or were you the owner of the property?

What can you tell me about your experience?

We know someone who may be moving if a job possibility falls into place.

We are currently in a situation of renting but paying twice what we paid on a monthly mortgage payment.

Their home is paid for but has a few issues that would make it difficult to sell to an average home buyer. Market value of their home is assumed to be between $80,000 to $90,000. It is between 50 and 60 years old. 

I'd like to talk to them about our renting their home from them with option to buy, meaning that we would be able to buy it by the time a year is up. We do not have a down payment but are not first time home buyers. We are not looking to flip the house.

 

Can part of the year's worth of rent count as the down payment? If you don't use a realtor, can you use a real estate broker to handle the transaction so that the broker is being compensated in some way?

How about a property management realtor? Have you used one of those in this type of situation?

[mom2samlibby]

I have not been a renter, but I was a seller in that position.  I had a friend that needed a house for her and her children.  She was going through a divorce and the bank wanted to wait to lend her the money until after it was final.  

 

To sweeten the deal for us she agreed to full asking price, plus a very large non-refundable deposit.  It was equal to about 1/2 a year's worth of payments.  She covered minor repairs, lawn mowing, and snow removal.  We covered the larger repairs, taxes, and insurance.  She was to purchase within a year's time, but that didn't happen because the divorce took longer.  We had written into the agreement that the time frame could be extended.  We did a lower monthly payment with her and all of it went to us.  

 

We did not use a broker, nor did we want to.  The money that we saved by not paying commission allowed us to work out this deal with her.  We found a contract online and used it.  

 

Unfortunately, after two years of renting, she was unable to purchase the house, thanks to her ex.  :(   

 

We had to repaint, replace carpet, and clean to place it back on the marker, which ended up using all of her non-refundable deposit. 

 

We had another couple approach us about renting to own.  (We are in the price range that does not move in our area. UGH!)  They wrote up an offer.  We have not accepted their offer and are holding out, hoping that it will sell.  They had subtracted a realtor commission off our list price, so right off the bat, they offered $20,000 less than what we were asking.  They offered one month's rent as a down payment and said if they didn't go through with purchasing in 2 years, they would pay us $5,000.  Not sure how we would be able to collect that???   Of their monthly rental payment, they want $300 of it to go towards closing at the end, but it isn't much higher than what we had gotten from our previous renter.  If the repairs were major, they would split the difference with us, but wanted their amount taken on the closing price.  We really weren't too impressed with their offer.  It was very much in their favor.

 

If you are wanting them to seriously consider your offer, you need to make it worth it to them to allow you to rent for awhile.  We had no problem with part of their rental payment going to closing, but the rental amount needs to cover the monthly payment, taxes, and insurance that the seller is still covering, plus that amount to set aside for you.  The downpayment needs to show you are serious.  One month's rent will not leave them money to cover repairs if you walk away.  

 

It can work, but it needs to be an agreement that will work for both of you.

[DawnM]

I had a friend who did this, rent to own type thing.  He basically told her that he would calculate a 30 year mortgage and she would pay that amount, and whatever would be the principal of that, she could count towards a payment of the house.   She didn't like that and wanted 100% of her rent to go to 100% principal.  

 

Is your friend/relative in a position to not need the sale for a new home?    Can you not get a loan and just buy it?

[gaillardia]

Thank you for responding, DawnM and mom2samlibby. 

 

We want to do this for a couple of reasons. For one, the price we are paying for rent now is too high when compared with the price of what a mortgage could be. We're in a small older home. We got in a bad situation and ended up with nothing for a down payment, unemployment and no place to live. It was that hard to find a place to live (to buy or rent) in this area, it is a tight market. We are going to be here for at least 2 more years if not the rest of our lives and do want to own a home again.

 

DawnM: Our friends who may be moving owe nothing on their home but are in a bad situation too. Unemployment for a long time. We haven't spoken to them about doing anything like this but I am certain the guy will be making enough money when they relocate that they could do more than "get by" without having sold the house. I have never known anyone as frugal as they are and I know a lot of frugal people.

The thing is, they'd end up using a realtor to help it move. If they didn't do repairs they would definitely be low-balled. We're not concerned with repairs because my dh knows how to do a lot. 

We're not sure about getting a loan, just wading in slowly with ideas. Our current property management company knows our situation and recently sent us a letter asking us to consider buying a home in which we'd have a mortgage payment at half the monthly price of rent. 

I would never want to screw up our friends' situation and wouldn't expect them to repair everything and hand over the house. Like I said, there are a few things wrong with the house, but there are also a few things very good about it, repairs and upgrades that they already completed.

Our first home we sold to our neighbors without going through a realtor, just a lawyer. Easy. 

 

mom2samlibby: it doesn't sound like it has or is working out very well for you! Unfortunate for your friend. But the other people? I really get tired of people just acting so ...what is it? competitive? market advantage? Greedy? I hope you can hang on and get what the right price is for your place.

Thank you both for your insight, experience, and advice. 

[Carol in Cal.]

I know someone who kind of did this.

 

A young engineer rented a room from an elderly man, discounted so that he would keep an eye on the place and do light housekeeping, gardening, and repairs.  After about two years of this, the man offered to sell him the house (I think because the engineer got engaged and would have moved out, and also the elderly man wanted to entrust it to someone who would take care of it.)  I don't know where the elderly man was moving to.  

 

So they agreed to get an appraisal.  The engineer's fiance knew an appraiser, who lowballed the appraisal as far as she thought she ethically could, and the elderly man agreed to that price and threw in a lot of antiques for free.  Also, while this process was going on there was some kind of rent break--either the rent started to count toward the price, or the rent started to be waived.

 

Bottom line, the happy couple got a beautiful old house in very good shape that they knew quite well, and a bunch of lovely antiques, but they also took advantage of the elderly man's goodwill in a way that I thought crossed the line ethically.  I mean, if they had a true appraisal but offered less and he accepted it, that would have been OK; but the man clearly thought that the appraiser was doing a nonpartial and accurate valuation of the place, which she did not.  That was wrong.

 

I think that to do a good job of a rent with option to buy, things have to be very clearly spelled out, and getting impartial information about the law and the value of the property are crucial.  Even then, it's easy for things to go wrong, and often someone feels wronged in the end whether justifiably or not.

Edited October 8, 2017 by Carol in Cal.

[gaillardia]

Carol in Cal.: I like/don't like your post. That's really sad.

That's the kind of story I'm talking about with people taking unfair advantage. I guess that's part of my issue too. I don't want anyone to screw our friends over. They are not necessarily gullible but I would hate for them to be in a position where the only buyers are realtors or home flippers who have no interest in making it a home for themselves.

This is a tight market, or at least it was a year ago and I haven't been watching things too closely. Two homes in our small town neighborhood had for sale signs up and taken down in less than 30 days. 

I'm feeling motivated.

[Bootsie]

Are the owners of the house able to do owner-financing?  

[gaillardia]

Are the owners of the house able to do owner-financing?  

I do not know that yet. Many questions yet to be explored.

 

I drove past their house today and saw that the one across the street is for sale, no money down, no closing costs. !