Renters,
Basically, most people would rather own a home than rent one.., but most simply
cannot come up with the needed credit scores and/or down payment needed.
However, there is an alternative. Lease or Rent-to-Own options. We will
discuss the two most common programs that we offer, however there are a wide
variation of different contracts and some people make very strange deals with
other people they hardly know that can and often do cause them harm in the end.
So we try to keep it as simple as possible.
Disclosure: Please be aware that we at BCI Properties, LLC
does represent the best interests of our clients, the home owners. We will always be honest in all our
dealings with owners and tenants, being fully aware of the Washington State
Landlord Tenant Law. You should have all legal, lease, rental, purchase and sale
agreements etc reviewed by an Attorney. We can recommend several in the area if
you wish, or you may choose to call on our own Attorney Martin Burns of Tacoma,
who is a partner at Attorney's Title.
What is Leasing or Renting a home with Option to buy?
A Lease or rent to own home is where you you may
also control the property by having the option to purchase it at any time
during your lease period for a fixed pre-determined price and time period.
Once a Lease Option Contract is signed around and mutually agreed on, neither
the owner nor their Agent can market or sell the home to anyone else,
since they are bound by their agreement to give you a Lease/Option right to
occupy and buy. If you do not buy the home within the prescribed period set
into the contracts, all bets are off and the deal is then null and void. Always make sure
that the Property Manager or Seller/owner files your option to buy agreement
with the county recorders office that the home is in, especially in Washington
State if the Lease/Option is over 12 months. This will protect you
further in most cases. - The assumption is that a buyer lacks the good credit
or down payment needed to just purchase a home of their choice, which makes
this type of option a possibly good alternative.
Two Optional Rent-to-Own Plans
1. Rent to Own Basic Option -
A simple
rental agreement with a basic statement in it or attached as an Addendum,
which allows you the "right of first refusal" or "option to buy" the home for
a pre-set amount of time and on some rentals we can even negotiate for a pre-set
price. Options are set for the term of the lease or one year. No extra money
down by the renter, just pay normal rent. You must come up with what ever is
required by your lender for a down payment, appraisal costs, Escrow fees and
other closing costs in the end of
course. Closing costs for a buyer seem to average about 3% to 5%. For lender
or Bank help, contact Ben Leske my son
the local Home Loan Lender.
He can help with the Home Loan process in terms
of what to do next. See logo and phone number to the left above.
2. Rent to Own with Real Estate Purchase and
Sale Agreement Plan -
There are two parts to such an agreement:
A. The first is
a standard lease that spells out the monthly rent with terms, and other standard lease
terms.
B. The second part is a Real Estate Purchase & Sale Contract attached to
the Lease as a "rider" option that must be exercised to be valid. This mutual
agreement binds the Seller to sell to you at an agreed upon price within a
specific time period, and typically has some kind of agreed upon
non-refundable deposit which is applied to the purchase price or can be part
of the down payment if the option is taken. The Seller/owner
has to sell your home to you when you want to buy it (during
the option term), and generally it is for a "Locked in price", but you don't
have to buy if you don't want to. That is why it has a non-refundable deposit.
You can back out of the agreement, but you would loose your deposit.
The lease option has a fixed period after which it
expires. The term is typically one to three years and is negotiated between you
and the Licensed Property Manager on behalf of the Seller/owner. In Washington
State, Licensed Property Managers must also be Licensed Real Estate Agents or
Brokers, working under a Legal Real Estate Brokerage. To secure the option, a down payment is
normally necessary. This is
known as "Option Consideration". This consideration is compensation to the
owner for taking the property off the market and to guarantee a future price
to you which is generally based on today's values. This is generally good for
a buyer as a fixed sale price can result in instant equity when the option is
exercised. This is also good for the seller as they get their unsellable home
sold. - A safety catch for the buyer is that their lender must do an appraisal
at the time of purchase and prior to closing at Escrow. If the property does
not appraise for the amount of the sale price, then the buyer can typically
back out of the deal or re-negotiate with the seller for a further reduction
of the sale price. The seller can also back out of the agreement at such a
time, as the offer to reduce the price is then a "Counter Offer" and gives the
seller a right to get out of the deal. The Lease to own option consideration will be applied as a
reduction of the purchase price at the time you decide to buy..., or it can also be counted as
a down payment instead in order to help you qualify for a loan. Your
Property Manager BCI Properties, LLC can help you with finding a suitable home
loan lender. We also act as a Dual Agent in such a sale with a big discount to
the seller/owner, generally just 1.9% total real estate fees to the owner
instead of the typical 6% an owner would normally pay. Attorney's Title and
Escrow will ensure clear title and review all the documents to make sure all
forms meet their standards and nothing is missed. Buyers may also want to have
all documents reviewed by a Real Estate Attorney, such as Martin Burns ATT at
Law who may charge $250 on average for such a review.
If you decide not to purchase the property, the
option consideration is not refunded, as it is normally written into the
agreement as a non-refundable deposit. It is kept as compensation by the owner
for guaranteeing the price to you for a fixed period of time and for holding
this property off the market. Your intent
should therefore always be to buy the home once you enter into a rent to own
agreement. The option consideration is typically 3% to 10% of the agreed upon
purchase price and is negotiated up front.
You should always ask for a rent credit. This is
beneficial for both the Seller and the Tenant/Buyer. You agree to pay slightly
higher than market rent, in exchange for receiving a percentage credit to the
purchase price for every rent payment made on time. Eg. Let's say market rent
for a specific home is $1,400. You agree to pay $1,600 a month in rent, which
is $200 extra...., but in
return you receive a $400 a month rent credit if you paid on time. If you
leased for one year, you would have accumulated $400x12 = $4,800 in rent
credits, which can then be applied to your down payment and will reduce your purchase price even further. In other words, a
portion of your rent is saved towards the purchase of your home, instead of losing
the entire amount to the landlord. However this may not be part of every lease
and you must ask for this concession, the owner may or may not agree to that
provision. You would be paying an extra $200 a month but the owner/seller
would match it ..... thus a good move for you to make.
*Note; An option fee, which is generally 3-10% of
the home purchase price, is negotiable and is paid to secure the Option To Purchase
Agreement. 100% of the option fee is applied toward the purchase price,
or down payment, as a credit when you purchase the home at the end of the
lease term. In addition, any amounts you elect to pay in excess of the
base monthly lease/rent are also applied 100% toward the purchase price.
This enables you to build equity ownership in your home and possibly not have
to make any additional down payments in the end.
Requirements include:
Along with a Lease/rental contract we will need a written Purchase and Sales
Agreement to
be executed and fulfilled within
12 months, but you may negotiate in many cases for up to 36 months on a
Lease/Rent to Purchase Contract... and you may be able to "Lock in" the
price while the original owner will remain on the deed until you have taken your
option to buy, as you are still renting or Leasing and only have an "Option" to
buy. Any Lease or rental contract that exceeds 12 months or 1 year, must be
officially acknowledged or Notarized and should be recorded by the Pierce County
Washington Auditors Office... if your home is in that area. You need to have:
1. A qualified job, meaning that you have been on a job at least a year and its full time or that
your co-buyer
or spouse also qualifies.
2. No evictions on your records.
3. Enough cash to pay 1st + Last months rent + deposit. Depending
on the plan chosen, deposits vary.
4. Willing to pay a $35 basic or $75 full, credit check fee.
On the good side:
A. If you are happy with your home, you can buy it at yesterdays prices
because our BCI PROPERTIES contract protected you by "Locking in" the
original sale price when we first negotiated the Lease/Purchase contract. You
paid for that privilege with your non-refundable deposit.
B. You may take your option at that time and finalize the purchase of
your new home. BCI Properties, LLC can assist you with finding a lender with
suitable rates to make it a smooth process. You should have all legal contracts
reviewed by a competent Real Estate Attorney.
C. If you have a non-refundable deposit,
it can be used as part
of your down payment. Financing a home can be tough these days and money
is tight, even good credit scores may not help when your lender requires a down
payment that you may not have, so you can Lease-to-Own with a non-refundable
deposit or you can negotiate to have a part of your monthly rent applied or
credited toward your down payment. When you exercise your
option to purchase however after a year or two, your lender may tell you
that your loan could possibly be treated as a refinance using the appraised
value of the home. Ask your lender today.
On the bad side. What can go wrong?
A. You may not be able to get your credit score to come up within 12 months
and the owner may not want to re-negotiate your Lease/Contract or may want a lot
more for the rent/lease. Ask us to write into the lease contract an automatic
2nd year lease/rent if needed with no more than a 8% raise in rent... as an
example. This is not in the normal lease and it will not be available to you if
you do not ask for it. Some owners may refuse up front but many more will
cooperate.
B. You may not like the current finance rates or plans offered
to you when you are finally ready to buy and exercise your option to purchase.
Do not allow your Lease contract to expire before you decide what to do.
C. You may have poor credit, no money down... and/or no
job. There is not much we can do for someone who has all three strikes
against him/her except to encourage you to save your money, improve your credit
score by paying your bills... and/or get a job. If its just poor credit but you
can come up with the money to put down, we may be able to help. If you have good
credit but just no money down.., we can probably help. If you have no job or
source of regular documented income... well, not much we can do about that.
D. If you paid extra money down or a
non-refundable deposit and allow your rental lease to expire before you execute
a Purchase and Sale Agreement you can and probably will loose that money.
For lender or Bank help, contact Ben Leske
my son the local Home Loan Lender. He can help with the Home Loan process in terms
of what to do next. See logo and phone number to the left above.
Call today for more info. More details will be listed
here later.
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