HarryTheSpider

Could somebody give me a b/s free explanation of how 'rent to buy' works here in the US (in AZ...) and what are the ups and downs of this method?

I've done some 'research' but all I can reliably get are solicitations, not explanations!

Cheers

HTS

Egg and Cress

I can't tell you how it works in AZ, but having purchased my first home here that way and worked in real estate for 24 of my many years in the south, I can tell you how it works here - shouldn't be too much different.

We rented the house on a contract that gave us an option to buy it after a given period (in our case it was 1 year). The rental was based on the common rental market at the time plus an additional amount that was put in an escrow account to apply toward the down payment. That, supposedly, was to give us a "forced" savings and allow us time to save more money for the down payment. Granted, the rent was more than it would have been had we not had the option to buy, but since we had no credit record here and no savings at that time, the plan was a big help.

When the year was up, we had to make the choice of either going through with the sale, or moving out and finding another place to live. We bought the house, using the "extra" rent toward the down payment and the money we had saved during that time. From there on it was a simple sale; had we chosen not to buy the house, we would have been out the extra money we paid for rent, but that was all. It was a good deal for us at the time. (Turned out it was a good deal for the seller, too, because he was having trouble selling it as it was "haunted".!")

Hope this helps.

Egg and Cress

P.S. If you choose to look into it, read the contract really well - the seller can choose to treat the property as a "rental" and accept responsibility for repairs (as usual), or put the responsibility for such things on you, as the "purchaser". Hence, if the AC goes out, he could say it's your baby. Another suggestion is, don't sign a contract when you need to, but only when you wantto. That way, if you don't like what's in the rent-to-buy contract, you have the leverage of easily walking away, thereby exerting more control over the seller. heh, heh, heh

fatbrit

Good primer here:

Egg and Cress

This is a LOT better than anything I could tell you - especially since I forgot to mention the owner financing thing. Good Luck!

Michael

Just be careful in the current market. Many homes that are on the current market are underwater and the owner may not paying the mortgage waiting for foreclosure.

Sometimes the landlord requires a down payment plus extra rent and the money is not placed in escrow according to the contract. When the house is foreclosed, the owner has already skipped town with your money.

Also you still need to qualify for a mortgage when the option period is due so if you don't qualify for a mortgage, you lose your deposit and extra rent monies. Besides if the owner is underwater, he has to come up with the money to pay off the original mortgage or the option can't be exercised.

Finally usually the option price is above the current market value but that usually isn't a big deal in a rising housing market but during a declining housing market, the option probably won't be worth exercising and you will loose your deposit and extra rent.

For many of the things that could possibly happen, you have the right to sue but that may be difficult if you can't find the owner and you also can't get blood from a turnip.

HarryTheSpider

Thanks everybody for your observations/advice/pointers etc...

Plenty there to think about.

We're currently renting - normal, no buy option etc...

... and there's a possibility the landlord may wish to offload at some point.

We know him quite well, we know where he and his family live and work, but even so, plenty to make sure we avoid/get right...

... we won't be rushing in to anything.

Again, thanks.

HTS

JAJ

Rental on a "rent to buy" always costs more than the same property would cost to rent on its own.

And even if you have a "rent to buy" contract with the owner and pay the extra rentals this results in, it all turns to dust if the owner goes bankrupt.

digbydog

Rent to buy only really works well in markets that are rising for many reasons.

Nowadays you should really only buy a house if you can afford it (hint: have at least a 20% deposit plus sitting in the bank half a years expenses saved up).

If you have less than a 20% deposit the reality is that due to markets continuing to fall you will be "underwater" before you know it and that is not a place you want to be. A price drop plus the 6% selling costs will eat up the your hard earned 20% deposit pretty quickly.

Why pay a premium now for an asset that all indicators show in the next 12 months will continue to fall in value.

fatbrit

Housing markets are local. There is some evidence that the Phoenix market has already bottomed.

tamms_1965

Exactly

sir_eccles

Which shouldn't be taken to mean it is going to go up any time soon.

fatbrit

Indeed!

sir_eccles

I should stop checking the z-estimate of my house on Zillow. It's depressing enough as it is and we only bought last year.

fatbrit

I'm following the Prescott market at the moment -- we're thinking of buying a big place up there but, luckily, it really doesn't matter when we move. I'd say it's still falling slightly, and we're holding at the moment till we find exactly the place we want.

But the Phoenix market seems to have dropped as far as it's going to in my estimation.