Understanding Rent-to-Own Apartments | Oh My Apartment

Understanding Rent-to-Own Apartments | Oh My Apartment: "Rent-to-own apartments are apartments that give the renter a lease purchase option. In other words, when your lease term is up, or at some other time, as stipulated in your rental agreement, you will be given the option to purchase the ...



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Article On Lease To Buy In Florida Today

Real estate: Lease-to-own an option for buyers

Deal allows savings toward down payment

BY ANNE STRAUB
FOR FLORIDA TODAY
• JULY 19, 2009

Kurt and Nichole Coleman need some time to save a down payment on their next home, but that doesn't mean they're postponing the search.In fact, they've found the house they want to buy, and they're already living in it.

The Colemans are using a creative financing tool known as a lease-purchase option on the Melbourne Beach home, which they moved into in May. The couple has a lease on the property and an option to buy it any time in the next 10 years.

The arrangement lets homebuyers save toward the purchase -- often, a portion of the rent is designated for the down payment -- while giving the seller some rental income in the meantime.

"Basically, you're buying time," Kurt Coleman said.

Coleman is a fan of the financing tool, and used it to buy his first home when he was 25. At the time, he wanted to buy a home, but he didn't have enough cash to qualify for a loan, and he didn't have a credit rating.

Under the terms of that deal, he had a lease on a Melbourne home and an option to buy in five years. He paid double the market rent for the first six months, with half going toward the down payment. Then, the rent dropped to the going rate, and 20 percent of that amount went to the down payment fund.

The forced savings helped him quickly amass the 5 percent down payment he needed as a first-time homebuyer. He closed on the home in three years, instead of five.

This time, he and his wife are using the method to buy a home in Melbourne Beach. They need the time to save a down payment because they're keeping the Melbourne home, as well as Nichole Coleman's previous home, as rentals.

They negotiated a 10-year deadline to exercise their purchase option.

"I gave myself a lot of breathing room because of the economy," said Coleman, who works as a firefighter for the city of Melbourne. His wife is a nurse and the couple has two children.

Their security deposit and20 percent of their rent payments will go toward the down payment. The purchase price of the home is already settled; the Colemans offered the seller his full price to make the creative approach palatable.

The deal looked good to listing agent Cindy Walker, who had listed the property for the seller for a long time without any purchase offers. The home had been rented on and off, but nothing approached a sale."The way I presented it to the seller was, 'I do believe there's someone for every property, and this is it,' " said Walker, a Realtor for South Island Real Estate in Melbourne Beach.

She received a rental commission for the lease arrangement, and will receive a sales commission if the purchase option is executed. That discourages some Realtors from working on lease purchases, she said.

"Nobody wants to wait 10 years for a commission. But I look at it as money in the bank," she said. "I've now established a relationship with this other person, and this is a relationship business."

She and Coleman offer tips for others contemplating using a lease-purchase option:

Don't be afraid to ask. The Colemans approached Walker with the idea. The seller wasn't looking for a lease-purchase arrangement, but now he is relieved of the maintenance on the property and he gets regular rental income, Walker said.

Search for a home listed for rent and for sale. Coleman used the computerized multiple listing service to comb for potential properties, atwww.brevardmls.com. If one was listed for sale and for rent, he knew the seller didn't need an immediate sale.

Know your credit, know what you need to do to qualify for a mortgage and have a plan to get there. For Coleman's first purchase, he had a checklist of items -- including using a secured credit card to build a credit standing.

"You don't want to be six months out from your option limit and find out that you're not going to qualify," he said.

Ask for no prepayment penalty. That way, you can execute the option before the lease term is up, if you're ready.

Everything's negotiable. How much of the rental payment will go toward the down payment? Will the renter pay above-market rent to compensate for the down payment fund? Who will handle maintenance and repairs?

The Colemans are gambling on where interest rates will be in the future, but they're confident the market will rebound. "I feel like I'm going to have quite a bit of equity in 10 years," Kurt Coleman said.