How-to Monday: Rent-to-own
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You can rent a house. You can buy a house.
Or you could do both.
Rent-to-own -- a contract that gives a renter the option to buy at a set price -- is a niche part of the housing market. But it's one that more would-be sellers might be pondering as they consider alternatives in these slow times.
Be aware that these deals offer a lot more complications (or, at least, issues to consider) than a straight rental or regular sale would.
You'll want a contract, most likely one written by an attorney, said Barbara Nichols, a California real estate broker who wrote The No Lawsuit Guide to Real Estate Transactions. In it, note the term of the lease option -- how long the renter can rent before he or she is obligated to decide whether to buy -- and the sales price. Normally, an agreed-upon portion of the rental payment is applied toward the down payment.
The renter/buyer should have a property inspection done in advance, she says. You don't want nasty surprises about the roof or the foundation after two years of accruing a down payment on the place.
For everyone's sake, agree in the contract who will be responsible for maintenance and repairs, she says. Note what recourse the landlord has if the renter damages the home and bolts, and what recourse the renter has if the landlord stops paying the mortgage.
Reisterstown attorney Marc Appel suggests both parties decide whether the renter must go through with the purchase once exercising the option or whether it's contingent upon getting financing.
The handful of calls that Baltimore Neighborhoods Inc. gets about rent-to-own issues are from tenants upset that things did not go the way they had been led to expect.
"A lot of times, the lease agreement is not really that clear," said Stephanie D. Cornish, program manager for the nonprofit's tenant-landlord counseling department. There might be just a sentence to the effect of "you have the right to buy."
Appel, a partner with law firm Waldman, Grossfeld, Appel and Baer and a panel attorney for Baltimore Neighborhoods, thinks people should have a lawyer look over the contract before signing.
"Usually it's the landlord who's drafting the agreement, so they've already had it reviewed," he said. "Usually it's the tenant-buyer who has not."
So let's say you have a well-written contract. Is the rent-to-own concept a good idea for you?
"It won't make sense for a seller if the prices are going up, because obviously you're locked into a lower price," Nichols says. "It does make sense for a seller if the prices are going down."
In that sort of market -- namely, this one -- the renter will want to think twice, she says.
Opinions? Personal experiences? Type away.