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-   -   Home: Rent to Buy? (https://britishexpats.com/forum/usa-57/home-rent-buy-726028/)

HarryTheSpider Jul 23rd 2011 3:35 pm

Home: Rent to Buy?
 
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 Jul 23rd 2011 4:06 pm

Re: Home: Rent to Buy?
 

Originally Posted by HarryTheSpider (Post 9513880)
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

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. :D

Egg and Cress Jul 23rd 2011 4:10 pm

Re: Home: Rent to Buy?
 

Originally Posted by HarryTheSpider (Post 9513880)
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

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 Jul 23rd 2011 4:20 pm

Re: Home: Rent to Buy?
 
Good primer here:


Egg and Cress Jul 23rd 2011 4:36 pm

Re: Home: Rent to Buy?
 

Originally Posted by fatbrit (Post 9513929)

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

Michael Jul 23rd 2011 11:54 pm

Re: Home: Rent to Buy?
 
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 Jul 24th 2011 2:42 am

Re: Home: Rent to Buy?
 
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 Jul 24th 2011 4:05 am

Re: Home: Rent to Buy?
 
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 Jul 24th 2011 10:35 am

Re: Home: Rent to Buy?
 
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 Jul 24th 2011 2:08 pm

Re: Home: Rent to Buy?
 

Originally Posted by digbydog (Post 9515309)
Why pay a premium now for an asset that all indicators show in the next 12 months will continue to fall in value.

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

tamms_1965 Jul 24th 2011 2:14 pm

Re: Home: Rent to Buy?
 

Originally Posted by fatbrit (Post 9515711)
Housing markets are local. There is some evidence that the Phoenix market has already bottomed.

Exactly

sir_eccles Jul 24th 2011 5:34 pm

Re: Home: Rent to Buy?
 

Originally Posted by fatbrit (Post 9515711)
Housing markets are local. There is some evidence that the Phoenix market has already bottomed.

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

fatbrit Jul 24th 2011 5:40 pm

Re: Home: Rent to Buy?
 

Originally Posted by sir_eccles (Post 9516045)
Which shouldn't be taken to mean it is going to go up any time soon.

Indeed!

sir_eccles Jul 24th 2011 5:50 pm

Re: Home: Rent to Buy?
 

Originally Posted by fatbrit (Post 9516054)
Indeed!

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 Jul 24th 2011 5:56 pm

Re: Home: Rent to Buy?
 

Originally Posted by sir_eccles (Post 9516065)
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.

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.

digbydog Jul 24th 2011 5:57 pm

Re: Home: Rent to Buy?
 

Originally Posted by fatbrit (Post 9515711)
Housing markets are local. There is some evidence that the Phoenix market has already bottomed.


Good to hear the AZ market has bottomed. All those AZ homeowners underwater who did "creative financing" will be happy to hear the news.

Lets hope the rest of the USA follows AZ lead.....

DD

sir_eccles Jul 24th 2011 6:05 pm

Re: Home: Rent to Buy?
 

Originally Posted by fatbrit (Post 9516074)
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.

The housing market is a little weird. I think it has reached the point where if you aren't getting any interest in your house, lowering the price just doesn't make any difference. There just aren't as many buyers/people able to get mortgages as there used to be. Plus there is so much stock to choose from, buyers can be very picky.

fatbrit Jul 24th 2011 6:09 pm

Re: Home: Rent to Buy?
 

Originally Posted by digbydog (Post 9516075)
Good to hear the AZ market has bottomed. All those AZ homeowners underwater who did "creative financing" will be happy to hear the news.

One b-i-l mailed the keys back to the mortgage processor for his des res in the distant Phoenix suburb of Queen Creek at the beginning of the slump when he got a job offer in Hawaii. He was at least $100k in the red, but had put bugger all into the house.

My other b-i-l recently moved into a house double the size of his previous one by walking away from a mortgage of $200k, about half of which was secondary. There appears to be no comeback on the secondary mortgage. In fact, 6 months down the road he's just secured a small business loan of $90k.

Egg and Cress Jul 24th 2011 6:12 pm

Re: Home: Rent to Buy?
 

Originally Posted by fatbrit (Post 9516086)
One b-i-l mailed the keys back to the mortgage processor for his des res in the distant Phoenix suburb of Queen Creek at the beginning of the slump when he got a job offer in Hawaii. He was at least $100k in the red, but had put bugger all into the house.

My other b-i-l recently moved into a house double the size of his previous one by walking away from a mortgage of $200k, about half of which was secondary. There appears to be no comeback on the secondary mortgage. In fact, 6 months down the road he's just secured a small business loan of $90k.

Amazing.......came out smelling like a rose!:frown:

fatbrit Jul 24th 2011 6:13 pm

Re: Home: Rent to Buy?
 

Originally Posted by sir_eccles (Post 9516082)
The housing market is a little weird. I think it has reached the point where if you aren't getting any interest in your house, lowering the price just doesn't make any difference. There just aren't as many buyers/people able to get mortgages as there used to be. Plus there is so much stock to choose from, buyers can be very picky.

The new trick on short sales is to price it at a ridiculously low figure to attract buyers in those crucial early days. Then when a full price offer goes in, the bank will counteroffer with a much more realistic price.

But certainly you're not going to offload anything in this market unless it's perfect or incredibly under-priced.

fatbrit Jul 24th 2011 6:14 pm

Re: Home: Rent to Buy?
 

Originally Posted by Egg and Cress (Post 9516093)
Amazing.......came out smelling like a rose!:frown:

I make no moral judgements about the inherited part of my family.

digbydog Jul 24th 2011 6:24 pm

Re: Home: Rent to Buy?
 

Originally Posted by sir_eccles (Post 9516082)
The housing market is a little weird. I think it has reached the point where if you aren't getting any interest in your house, lowering the price just doesn't make any difference. There just aren't as many buyers/people able to get mortgages as there used to be. Plus there is so much stock to choose from, buyers can be very picky.


This is the problem with the current real estate market. A lot owners don't understand why their house can't sell. The simple reason is the price is too high. All houses can be sold - you just need to lower the price enough and I promise the buyers will come. You might not like the price but you will sell your house.

It is very simple economics of supply and demand. Unfortunately this is why the market still has a way to go in places like AZ before prices move upwards.

sir_eccles Jul 24th 2011 6:39 pm

Re: Home: Rent to Buy?
 

Originally Posted by digbydog (Post 9516109)
This is the problem with the current real estate market. A lot owners don't understand why their house can't sell. The simple reason is the price is too high. All houses can be sold - you just need to lower the price enough and I promise the buyers will come. You might not like the price but you will sell your house.

It is very simple economics of supply and demand. Unfortunately this is why the market still has a way to go in places like AZ before prices move upwards.

I wasn't talking about people pricing their homes at 2006 values. I'm talking about homes priced way below current market value just sitting there. The few buyers out there have 20 better houses to pick from. Don't like the color, no need to factor in the cost of painting and make a low ball offer because there is blue one round the corner.

digbydog Jul 24th 2011 6:53 pm

Re: Home: Rent to Buy?
 

Originally Posted by sir_eccles (Post 9516125)
I wasn't talking about people pricing their homes at 2006 values. I'm talking about homes priced way below current market value just sitting there. The few buyers out there have 20 better houses to pick from. Don't like the color, no need to factor in the cost of painting and make a low ball offer because there is blue one round the corner.


Again supply and demand. The houses not selling are too expensive. Lower the price enough and buyers will come regardless of the color of the house.

Of course there are many owners who cannot do this as they owe too much to the bank and would need to bring money to closing. Hence the mess...

tamms_1965 Jul 24th 2011 10:55 pm

Re: Home: Rent to Buy?
 

Originally Posted by sir_eccles (Post 9516065)
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.

I wouldn't go just by what Zillow has on its website. My house sold for 10% over what they had it at this past December.


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