How to Rent To Own...
First, see the "Why Rent to Own" article, here.
4 Steps
The easiest way to find a rent to own (or lease option) is to use an
agent and go through these 4 steps.
1) Look at houses you want in KS or MO.
2) Choose your favorites to see inside.
3) An investor from our network buys your choice.
4) The investor lease/options it to you (rent to own).
This article is not an agreement or offer to anyone. It is for educational
purposes only. Please consult an attorney before signing any agreement or
contract.
Step 1 is to find an agent specializes in finding rent to owns and has connections
with investors who will help you complete your goal. Once accepted, the agent will help you search for houses in your preferred areas and price ranges.
In step 2 your agent will drive around with you or meet you at houses you have requested
to preview. An agent will setup appointments with the potential sellers.
The agent represents the investor in rent-to-own transactions setup like
this. In step 3 the agent notifies the investor that you have chosen a house
to rent-to-own from him/her that is in your price range.
Upfront Option Consideration
The investor will consider the house and it's potential, closing costs, and financing
costs. Typically, an investor will require 3% down as option consideration.
This buys the option to purchase later. This amount locks the house into,
"you are the only one who can opt to buy this house for a specified period."
This amount also helps defer the closing costs of buying the house upfront that the investor
will incur. This amount is non-refundable once you begin an agreement. Then,
the real estate investor buys the house and you move to step 4.
Upfront option consideration can be APPLIED to the purchase price. Many investors
will allow you to apply the option consideration to the price of the house.
So, if you were to put $3000 down and the optional purchase price was $100,000,
when you purchased it, you'd really only pay $97,000 for it.
You may hear someone say that it wil be applied to the down payment when you purchase.
This is only maybe true. It depends on the lender you choose. The lender
you choose may choose to allow you to put it toward the down payment, or not.
Don't have 3% to put down? See section below to create your own rent-to-own
without an agent or investor.
Rental Rates and Credit Checks
In step 4, the real estate investor sets up a separate agreement with you to rent
to own the
house. The rental amount is usually about 1% of the price of the house to
cover the investor's monthly mortgage and other costs. So, for an $80K house the rent would be $800 per month.
Before getting this far you'll want to check your credit. We recommend FreeCreditReport-com where you'll pay for a service, but get a good deal. See your credit score on FreeCreditReport.com. The investor is wise
to check rental history, but borderline credit issues are sometimes ok.
If you find that your credit score needs to improve, we suggest using Lexington Law Firm where you can pay for a low-cost actual credit improvment service.
Rent Credit
Sometimes, you might negotiate a "rental credit" which would be in the range of
25% of the monthly rent getting applied to the purchase price if you choose to purchase.
Option to Purchase
Then, you move into the house and have the option to purchase the house for a year
or two depending on your agreement. With an option agreement you are not required
to make the purchase and you can complete the lease portion of the agreement.
If you don't exercise your option, it is standard that you will not get any option
consideration back as that is paid to "purchase" the OPTION to buy a house.
When you decide to purchase, you purchase it at the price you negotiated upfront
and the house is yours!
As mentioned above, this site is not an agreement. All agreements are different.
Before you sign any agreement or contract please consult an attorney and/or other
qualified professional.
Start Searching > for a rent to own!
How to Rent To Own without an investor...
To get the cheapest deal on a rent-to-own, you can always do the work yourself
without an investor or real estate agent.
Here's how:
5 Steps to Setup a Rent To Own
1) Directly call sellers asking if they'd do a rent-to-own for you.
2) Negotiate the rates and conditions with the seller directly.
3) Conduct due diligence on the value of the house and deal.
4) Draw up a rent-to-own contract (use an attorney).
5) Move into your rent-to-own (lease option) house.
Calling Sellers
Step 1 of calling the sellers is where most people will not succeed.
Anyone CAN do it, not everyone WILL. You will have to ask a lot of sellers
before you'll find someone willing to lease their house to you and give you the
option to buy it.
Calling FSBO's you might find that 1 out of 3 will consider listening to what you
mean by "rent to own". Then, of those who will think about what you are saying,
you might get 1 out of 10 who will actually do a lease option (rent-to-own) with
you. These numbers vary depending on the market conditions. If it is
hard for sellers to sell, they will be MUCH more open to your idea.
In this step you basically call the seller up and say, "Hi, I'm calling about your
house for sale, would you consider doing a lease option?" They ask what that
is or act like they already know what it is and you explain it to them.
Negotiate Rates and Condition
Next, you want to see the house in person and decide what it would be worth
to you to lease option the house. Consider how much rent per month would be
fair. Consider how much to pay for the house in a year or two. Consider
how much you'd be willing to put down as option consideration. Doing this
on your own, you can put a whole lot less down upfront typically.
Due Dilligence
This is an extremely important step. You need to know what the value
of the house is which can be estimated by looking at its condition and comparing
it to other houses that have sold in the neighborhood that are comparable.
Also, consider market changes or neighborhood changes that may be occurring.
In this step it is also wise to do some research on the seller. Make sure
you trust that they will stand behind any agreements (they must be written) they
make with you. You may even want to check THEIR credit.
Make sure you have an agreed upon future price. There are horror stories of
verbal agreements to sell at market price someday, that never happen.
We suggest using an attorney for this step as well, because there can be pitfalls
that the lay person is unaware of. For example, lease options are mostly disallowed
in the state of Texas.
The Contract
The most important thing you can do is to get a good contract setup.
Disagreements happen all the time and if you are not clear in your conditions upfront,
you will end up in court.
Consult a qualified attorney to draw up the best contracts for you and your situation.
Ask them for advice regarding the whole transaction. Ask them what additional
protections you could setup for your deal. Ask them what worst-case scenarios
could occur.
Take care of these things upfront for the best chance of a successful and smoothly
running lease option deal.
Move In
This may seem like an obvious step, but there are many things to get started
once you are in the step, or even before. Once you sign the agreements, get
the keys, and move in to your new house, remember you are leasing with the option
to buy. You need to start thinking about how you are going to purchase this
house in the next year or two.
Clean up your credit. See here for a starting place to learn how to do this.
There are many free and helpful sites on the web. There are also pay for service
credit improving companies to consider.
Pay your rent on time and keep records. These records can sometimes be used
to help show a bank your creditworthiness.
Take care of the house. This will likely be your house soon and you want it
to appreciate in time as much as possible.
Enjoy the house! That's what we're doing this for right?
Learn more
> Email us at owner2b@yahoo.com
Or, Start Searching
> for a rent to own!