6 Things to Know Before You Sign a Rent-to-Own Lease Option Contract
Rent-to-own, also known as a lease option, is a contract that
allows renters to lease a property, and at the end of the lease,
usually one to three years, have the option to purchase the home at
a predetermined price.
Ideal candidates for a rent-to-own option are potential home buyers
who dream of ownership but are also concerned they haven’t saved up
enough cash for a down payment, or have a low credit rating.
As a renter, you must be cautious before you sign a rent-to-own
contract. There are many stipulations within a contract, so make
sure you understand the lease options.
Here are six things to know before you lease a property with the
option to buy.
1. Determine a fair sales price. Under a lease-option contract,
you’re the only person who has the option to buy the property
during the stated period.
Although you can usually buy the home at any point during the term
of the contract, the sales price is locked in.
You may have locked in to a great deal if the home goes up in value
during the lease term. On the other hand, you could end up paying
more for the home if it depreciates and a set price was locked in
for a higher amount than what the home is worth when your
lease-option is up.
2. Complete a home inspection and document any necessary repairs.
As with any home purchase, the condition of the home should be
reflected in the price. Take photos to document the condition.
3. Verify whether there are any liens against the property that
will affect your home purchase. You don’t want any argument over
who owns title to the home.
4. Spell out the exit clause. Make sure the contract specifies
exactly what happens if you don’t exercise your option to buy the
home at the end of the lease.
5. Ensure all payments on the property are made, and the insurance responsibilities
are clearly spelled out.
6. Consult a professional. As always when purchasing real estate,
it’s important to hire an expert to help you navigate the process
and protect your interests.
Someone seasoned in rent-to-own contracts can ensure you’ve
specified everything in writing so that you understand the contract
and, ultimately, complete a successful transaction.
Foreclosure filings accounted for more than 1 million in 2015,
which implies there are lots of opportunities for individuals who
seek investment properties or buyers who need a great bargain.
There are great dirt cheap home deals emerging daily on the
However, be aware that purchasing a foreclosure can be a
complicated ordeal. So doing your due-diligence is necessary to
avoid the costly mistakes that are often associated with buying
Here is some advice from real estate agents about some of the most common mistakes they see when it comes to buying foreclosure properties.
Take heed to these helpful tips that will help you avoid costly mistakes.
1. Never Limit Yourself
It's OK to be excited in anticipating of buying a foreclosure.
Purchasing foreclosures can get the adrenaline stimulated!
Everyone likes a dirt cheap deal, so always keep your eyes wide
open when going into it, and don't assume that those are the only
homes you should checking out. Always be objective!
You will come across many competitively priced foreclosures on
the market, but the same can be said of traditional listings.
One thing that you will find is that foreclosure deals often come
with baggage, such as liens against the property, repairs that
need to be made, and always check to be sure that foundation
damage is not one of your concerns. Foundation issues can not be
only costly, but can render the house unlivable as well.
Always complete a professional home inspection, and document
any necessary repairs. As with any home purchase, the condition
of the home should be reflected in the price. Take photos to
document the condition.
However, don't be intimidated by how shabby or unkept a property
may look. Keep in mind that if your budget allows, many things can be fixed or upgraded.
Also, a traditional seller may be more adaptable about dealing with repairs or compromising on negotiating price.
Always keep in mind your reason for purchasing the foreclosure in
the first place. Is it for investment, rental, or is it for you
and your family? If you limit your search to foreclosed
properties, you may not end up in the neighborhood that you
really desire, or even with the type of home you dreamed of.
2. Don't Go It Alone
Find a real estate agent versed in the complexities of dealing
with the foreclosure market. Keep in mind that "dirt cheap
property" comes in several different packages; pre-foreclosure,
short sales, and bank-owned properties. You will need the
guidance of a professional who has a background in buying and
selling these types of properties in order to avoid wasted time
and unforeseen pitfalls!
Also be aware that real estate agents are not lawyers.
Foreclosure laws and regulations are tricky, and they vary from
state to state. Even though your real estate agent can give you
good advice in some areas of the purchase, you will need a to
consult with a local real estate attorney about the legal
Always consult a professional. As always when purchasing real
estate, it’s important to hire an expert to help you navigate the
process and protect your interests.