Rent-To-Own-CT.net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SELLER FAQ's

On this page is information intended to answer many questions property owners and sellers may have regarding Lease Purchasing. We hope this helps and if you would like to discuss anything in this program or have additional questions, feel free to call us. We would be happy to hear from you. CONTACT US.


Question: What is a Lease Purchase ?


Answer: A Lease Purchase is simply a lease agreement with the option for the tenant to purchase the property. The tenant-buyer makes monthly  payments (rent), and in many cases a portion of those payments is applied to the price of the house (rent credits). The Lease Purchase allows you to have your mortgage paid for, plus (in many cases) have extra cash flow every month. 


Question: How does a lease purchase/rent-to-own program work ?


Answer: If you are a seller and you decide you would like us to start marketing to place a tenant-buyer into your property, CONTACT US to set up a consultation to determine what type of arrangement would work best for you. For more information on these different types of arrangements, please visit our Listing Options page.

Once a suitable arrangement has been determined, we will schedule a property visit to discuss the terms of the agreement, take pictures of the property and get the appropriate documents filled out and signed. Once all of that is completed, we will then immediately begin marketing your property for a tenant-buyer.


For the tenant-buyer, the program works as follows:

    1. Consult with us for pre-qualification and property location.
    2. View the property(ies).
    3. Submit offer.
    4. Once an offer has been negotiated and accepted (including Owner approval if Cooperative Assignment), agree to all terms of the Lease with Purchase and Sale and Option Agreement (and assignment agreement if cooperative assignment).
    5. Submit deposit with Seller's attorney (or assignor's attorney if cooperative assignment).
    6. Enroll in a credit restoration program under the direction of the credit restoration specialist (if necessary).
    7. Sign final lease purchase agreement (cooperaitive assignment only).
    8. Get the keys and move in !

Question: How is the purchase price determined and can I get my asking price ?


Answer: Purchase price is determined by reviewing the comparable sales, visiting your home and discussing things with you. The price is then set as high as possible yet still reasonable for the market. Remember, you are offering the tenant-buyer a set price for some future date and they are willing to pay a premium for your home.


Question:  What happens if the property does not appraise at the end of the lease term (typically 12-24 months) at the set price ?


Answer: If the property does not appraise, there are two options:

    1. Lower the tenant-buyers' purchase price to the appraised value; or
    2. Extend the tenant-buyers' terms until the home does appraise at the price you want.

Question: How is the monthly lease payment determined ?


Answer: Rental price is determined by Fair Market Rent reviewing comparable rents and discussing things with you. Rent should be reasonable for the market but with a minimum of the mortgage payment (if any).    

                       
Question: Why should I offer a rent credit ?


Answer: A rent credit is valuable for several reasons. It can allow for more flexibility for a tenant-buyer to pay the option deposit (e.g. the down payment) and can give the tenant-buyer a powerful incentive to pay their rent ON TIME EVERY MONTH.  This incentive form of rent credit only accrues in a month where the tenant-buyer pays the rent on or before the due date (1st of the month for incentive rent credit). These incentive rent credits are then applied to the purchase price. The rent credit amount can vary on a case by case basis but we suggest a $100 per month minimum.


Question: How much are you going to charge me ?


Answer: This depends on the type of arrangement. If the listing arrangement is that of For Sale or Lease Purchase or for that of For Rent, For Sale or Lease Purchase, then a "front end" commission is paid on the lease or outright sale of the property. In the case of this type of lease purchase, there is also a "back end" commission payment due upon closing after exercising of option to buy.

In the case of a Cooperative Assignment lease purchase, there is no commission fee. In these, we sublet the property to the tenant-buyer and then assign the lease back to the Owner. We also assign our option to purchase agreement between us and the Owner to the tenant-buyer for an assignment fee. All we ask for is proof of a clear and marketable title upon assignment. If the tenant-buyer wishes to buy outright instead of through a lease purchase in a Cooperative Assignment agreement then we exercise our option to buy the property from the Owner and then sell it to them through a 'simultaneous' closing arrangement. As DR Investment Properties specializes in these types of "wholesale" investment transactions, we have a special "Transactional Funding" short term hard money lender and our attorney specializes in these 'simultaneous' closings (a type of closing also known as a 'double closing' in which a property is bought and sold on the same (or next) day).


Question: Where do you find your tenant-buyers ?


Answer: We are always marketing for tenant-buyers. They come to us from newspaper ads, driving by our houses, referrals, the internet or possibly other sources as well.


Question: What about the maintenance ? 


Answer: The tenant-buyer is responsible for most maintenance. The only repairs you are responsible for are the major repairs such as the structural, and roof, which fall under your insurance as a homeowner.


Plus, we always recommend a home warranty so that repairs are covered. To handle the tenant-buyer being responsible for repairs and maintenance, the seller typically pays for a home warranty, and then the tenant-buyer pays the deductible when the home warranty company sends out a contractor to do the repairs. For more information on what is usually covered under the home warranty, click on this Home Warranty link. A home warranty is the most economical way for the tenant-buyer to be responsible for repairs and maintenance, and it encourages them to call and fix things, as the deductible is only about $50 when the contractor comes out.


Question: How is the seller protected in case the buyer vacates the property and/or causes damage ? 


Answer: First of all the tenant-buyer is responsible for most maintenance (as explained above) and with the recommended home warranty, repairs and maintenance are further covered (also see above); alternately, click on this Home Warranty link for further information.


Secondly, the tenant-buyer is of a different caliber than the typical renter. The tenant-buyer puts down a non-refundable option deposit (if you choose to do this type of lease purchase, we recommend that you do - see Terms & Conditions for more information on recommendations for setting terms), a full first month's rent (perhaps more - see Terms & Conditions) and possibly a security deposit (see Terms & Conditions for more information on these). This could very well be tough for them to do. As such, the tenant-buyer generally really wants to own the home and the option deposit (which becomes the down payment upon exercise of option) is a BIG incentive to take excellent care of your home and to purchase it and they generally don't want to jeopardize these expenditures.


Lastly, while this is not to say that there is no risk, there are some sellers, brokerages and/or investors that do not conduct a thorough investigation and/or do not get a large enough option deposit and this slack in choosing a tenant-buyer will lead to someone who is more like a typical renter and not the caliber of person that we seek to put into your home. We recommend a thorough background, employment and rental history check (from a company such as Tenant Tracks) and in addition, we could put in place for you a 'seller assurance policy' which would require a tenant-buyer to enter a credit restoration program (if necessary) and keep us/you informed of their lendability and progress towards getting the proper financing to exercise the option to buy.


Question: I'm uneasy about having "tenants", "renters", etc. in my house. You know how they are. Will they tear up my house ?


Answer: The great thing about the tenant-buyer in a Lease Purchase, is they are generally intent on exercising their option. They realize that they are paying non-refundable money toward the purchase of the house. Why would they want to damage something that will be theirs ? Often the tenant-buyer may make upgrades or renovations to the property. The difference between just a tenant and a tenant-buyer is that they are proud of their house and they care about it. Think of it like renting a car vs. leasing a luxury car. If you rent a car, you're not too concerned if something happens to it because you know you are going to return it and walk away. However, if you put down thousands of nonrefundable dollars to lease an expensive car that could soon be yours, why wouldn't you take VERY good care of it ? 


Question: Is the option deposit applied to the purchase price ?


Answer: Yes, the option deposit is considered a down payment on your home applied towards the purchase price.


Question: How is the option deposit transferred from the buyer at closing ?


Answer: For the answer to this question, 'closing' is defined as the 'front end' closing (e.g. the start date of the lease/option term). What happens is this: The tenant-buyer who is interested in the property puts their initial rent and option deposit (if any) into the Seller's attorney's escrow account (or the Assignor's attorney's escrow account in the case of a cooperative assignment lease purchase). Once the Seller/Owner has agreed to move forward with them, then the funds are released from the attorney's escrow account. Of these funds, one of 2 scenarios happen:

In a regular lease purchase, all of the initial rental deposit, save for any rental commission fees, goes to the Seller at the start of the lease term and all of the option deposit at the start of the option term. The start of the option term does not have to be the same as the start of the lease term but it is recommended. The option deposit becomes non-refundable at this point as it is considered a rent premium for the option to purchase. Upon exercising of the option to purchase, this rent premium then becomes the down payment towards the purchase of the property.

In a cooperative assignment lease purchase, all of the initial rental deposit goes to the Seller upon assignment of the sub-lease to the Seller/Owner at the start of the lease term. There is no original lease at this point as the cooperative assignment lease purchase agreement is secured by an option agreement only without a lease or purchase and sale agreement. This is known as a 'Pure Option' arrangement and is basically the exclusive rights to market the property for a buyer or tenant-buyer as the principal in the transaction and is secured by a 'Pure Option' deposit. This type of arrangement is not considered a "net listing" (which is illegal in CT) as a net listing is where a broker represents a landlord and/or seller for a fee above and beyond a set amount in the rent and/or sale. In a net listing, the commission is anything above this set amount. On the other hand, in a cooperative assignment lease purchase, the investor (e.g. the Optionee-Assignor) is the principal in the transaction and is paying the Seller/Owner for these marketing rights. Also, the Optionee-Assignor is not representing the Seller/Owner but is instead only representing themselves.

Anyway, in this arrangement, all of the initial option deposit, save for the assignment fee, goes to the Seller/Owner, also at the start of the option term. This assignment fee is added onto the purchase price listed on the "Pure Option" to purchase agreement and is secured by a purchase and sale agreement between the tenant-buyer and Seller/Owner. The Optionee-Assignor is out of the picture at this point. Because the Optionee-Assignor is acting as a principal, there are no commission fees for the Seller. After assignment, the tenant-buyer is no longer sub-letting, sub-optioning or anything else from the Optionee-Assignor but instead becomes the principal in the transaction as tenant-optionee-buyer-assignee. In the final lease purchase agreement, the purchase price listed on the purchase and sale agreement includes the assignment fee and upon exercising of the option to buy, all of the option deposit (whether part of assignment fee or otherwise) becomes the down payment.


Question: Could I use a Realtor ?


Answer: You can use a Realtor if you like, we are all about options so you are under no obligation to list your property with a broker but we highly recommend it and not just because we are a real estate investment company associated with William Raveis Real Estate. The reason we recommend the use of a Realtor is because they are specially trained professionals in the real estate market whose job it is to lease, sell and/or lease option your property for terms best to you and to do so adhering to a code of ethics and integrity. These professionals can be a valuable asset to you and they will handle the marketing of the property and also provide advice on how to proceed through all the many stages of the transaction from the start, all the way to the closing and beyond. This is especially true in complex specialty niche markets such as what this whole website is about - "renting-to-own", aka the lease with purchase option.

Now with us, there are 2 ways you can use the services of a Realtor - directly or indirectly. You can list with William Raveis Real Estate directly with an outright sale listing, outright sale or Lease Purchase listing, outright rent listing or outright sale, outright Rent or Lease Purchase listing. With these listings, you would pay a commission on the rental and/or sale of the property (but not on the option). Alternately, you could get a Realtor listing indirectly through a Cooperative Assignment Lease Purchase agreement with DR Investment Properties. In this arrangement, we would be the principal in the transaction as optionee-assignor and we would list with William Raveis Real Estate with an outright sale or Lease Purchase listing with the right to sublet, sub-option, assign or purchase the property through an Exclusive Option to lease with option to purchase and Exclusive Option to purchase agreement. In this type of arrangement, you would pay no commission on the rental or sale of the property but since our assignment fee would come from the option deposit as a rent premium, your share of the option deposit would be lower than in a direct listing lease purchase.

Lastly, we recommend for you to visit our Listing Options page so a listing package can be set up that best suits your needs.

Ask Raveis - Your Real Estate Team For more information about Realtors and also about your Real Estate Team.


Question: Is the option deposit used for the tenant-buyer's closing costs ?


Answer: No, the option deposit is not used towards their closing costs, but instead is applied directly to the purchase price as the down payment.


Question: I know that certain mortgages like FHA do not allow a seller to give money to a buyer for a down payment, isn't this essentially what would happen ?


Answer: No, you are not giving the tenant-buyer ANY money for their down payment with a lease purchase. They are actually putting their own money down up front, and because it flows through your attorney's escrow account (and ours too if a Cooperative Assignment Lease Purchase) as a down payment, the lender will have no trouble counting the up front option deposit as a down payment. As far as rent credits go, any rent credits which may have accrued could be applied either as a discount to the purchase price and/or as a credit to the option deposit/down payment. Generally, it is a rent premium on top of 'normal' rent which is credited towards the option deposit and the 'incentive' rent credit which is applied as a discount to the purchase price although the exact configuration could be a mixture of all of the above (see Terms and Conditions for more information on how rent credits work).


Question: What about insurance ?


Answer: You should contact your insurance agent for your specific needs; however, it is now considered a rental/investment property, and you can lower your coverage so as not to include items inside the house. Also, at William Raveis Real Estate, we also carry insurance. We can refer you to our insurance agent, Michael Alvord. CONTACT US for more information. Also, see Insurance (Renter's) for more information.


Question: What about the tax benefits ?


Answer: Until the financing is complete for the tenant-buyer, the house is considered an investment property for tax purposes. There are great tax advantages to lease purchasing, including the fact that a large part of the money you bring in is tax deferred. Your tax advisor can discuss your particular situation with you.


Question: How soon can the tenant-buyers normally get a mortgage ?


Answer: Every case varies some, but many tenant-buyers interested in a lease purchase program can actually qualify within 6-12 months. There are just blemishes on their credit that need to be resolved or removed. If the tenant-buyers need to have discrepancies on their report resolved, we can refer them to or even possibly require that they begin the process with a credit restoration company before they move in. This is our "Owner assurance policy" and in this way, we know the process is started, and it reduces the amount of time needed before they can qualify for a mortgage. With credit issues in a lease purchase its not what exactly the problem is that is the question but instead what is being done about it. As long as the tenant-buyer qualifies as a tenant (meaning income good enough to support the rent and related expenses and no missed rent payments or evictions within the last 24 months) then they should be alright provided they follow through with any recommended credit restoration program needed to obtain financing.

This credit restoration time is actually one of the most crucial factors in a lease purchase as one thing that is to be avoided under any circumstances is the "setting up for failure" of a tenant-buyer. If the option to buy is not exercised it should only be because the tenant-buyer CHOOSES not to do so and not because they can't. Therefore, the length of the lease/option term must be long enough to allow for any credit restoration that a tenant-buyer may need. Alternately, a tenant-buyer may have good credit and have good rental history but may be short on funds for the option deposit/down payment. In this case, a payment plan could be set up with some due up front (at least enough to cover a standard security deposit) and the rest paid in installments through rent credits either included with base rent and/or as a rent premium. Other payment arrangements could be made as well (for example, a 2 year term with up front option deposit, monthly rent credits and a 2nd option deposit due at start of 2nd year of option term). A rent premium is a 2nd rent payment, a 'note' if you will, above and beyond the normal 'base' rent amount to allow for additional payment of the option deposit in monthly installments). Also, in a Cooperative Assignment Lease Purchase, we may set up our own rent premium 'note' arrangement to have our assignment fee paid in installments as well.


Question: What if the tenant-buyer decides not to buy ?


Answer: While this does happen, it is generally unlikely due to the fact that the tenant-buyer has two major ties to the property: a financial tie and an emotional tie. The financial tie comes from the fact that all of the money they have paid is nonrefundable and can add up to a sizeable amount - thousands if not tens of thousands of dollars. The only way they can see that money again is if they close on the property. They would be better off to close on the property and then resell it themselves.


There are four major reasons where someone may not purchase the property, and most of these are catastrophic situations:


1. Loss of or transfer of job
2. Death
3. Divorce
4. Dissatisfaction with property during lease/option term.


We have purposely put everything into place in our lease purchase programs to get the tenant-buyer to close on the property. From the nonrefundable option deposit, to the rent credits, to immediately putting them in contact with a mortgage broker and a credit restoration program if necessary.


If, for some reason, they decided they couldn't close on the property (or chose not to), the house is still yours and in your name. You may decide to use our services again, or you may decide to try to sell it on your own or go through a different Realtor. The decision is yours to make. But, we are here to help you in any way that we can because the bottom line is, you want to sell, the buyer wants to buy and we do our VERY best to make sure that happens !


Question: What are the benefits of the Lease Purchase/Rent-To-Own model ?


Answer: The seller has a family living and caring for their property at a much higher standard than that of the typical renter. Tenant-buyers can test out a neighborhood and get a strong feel for what home ownership is all about. Should the tenant-buyer not like either, they can move on. The tenant-buyer also has time to restore their credit and secure financing on a property that they would otherwise have missed out on.


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We hope that the Answers to these Frequently Asked Questions helped give you confidence in a Lease Purchase program. If you have any additional questions, comments or if you decide you would like us to start marketing to place a tenant-buyer into your property, please feel free to CONTACT US.

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