Q:  Renting to Own - what are the issues? 

A:  There are situations where it works for both buyer and seller, but more often there are unanticipated situations that leave frustrated and disillusioned parties.  You must evaluate each situation yourself, but here are some items to consider.Benefits to the buyer are:

• Try before you buy
• Lock-in current pricing
• Find out problems with the house/neighborhood
• If the market declines you can get a better price, after all you don’t have to exercise the option, you can go buy another house

Benefits to the seller:

• Tenant vested in the property (we hope)
• Non-refundable earnest money deposit
• Contract to purchase the property
• Monthly income
• House not vacant

Things the buyer should consider:

• It is possible the owner stops paying the mortgage and the house is foreclosed upon – there is a change you might be evicted and the non-refundable deposit (is well, non-refundable)
• If you want to check out the area – just rent.  Why pay a non-refundable deposit – you might find a better house for a better price or relocate.
• Make sure your “option” to purchase is recorded on the deed.
• Have a written and outlined agreement for repairs; replacement items; etc.
• Are you sure they actually own the property and have a right to sell it?
• Have your attorney run a title search and consider what protection you have from judgements, unrecorded liens, etc.
  

Things the seller should consider:

• Maybe you need more information about the purchaser. Why aren’t they able to purchase the house now? 

                      - Credit, Income, Job Instability (is that who you want in your re ntal?)
                      - What makes you think things might change in the future?
                      - Review credit, income (tax returns); judgements; google them

• How will you feel the tenant/purchaser needs to be evicted?
• How will you feel if the market goes up?  You might consider a provision for you both to share the benefit of a rising market; or do you have an option NOT to sell it to them. 
• If the market goes down, you’ll lose more money, they won’t want to buy at that price
• What if they don’t care for the property as well as you expect. 
• Reference BB blog and photos
• Insurance claims again the property (maybe consider a requirement that the tenant carries insurance too)
• How will this effect your tax status when you actually sell the property?
• What if you NEED to sell the house and you are locking into this “potential future contract”?
  

There are professional investors that find this a good scenario for them; especially when they’ve purchased homes at foreclosure, the house is already in poor conditon.  Besides they have expertise in evicting bad tenants. 

There can be a high degree of risk – and while this could be rewarding and make an unusual situation work – but it is not for the faint of heart.Whether seller or purchaser - if you decide to move forward I would recommend that you talk to a local real estate attorney and check that they actually specialize and have experience in these types of transactions. 
This blog is intended for information use only and general discussion.  This is not intended as legal or financial advice and should not be relied on as such.  Please consult an appropriate professional such as an attorney or CPA is you should have specific or legal or financial questions.

Welcome to Yvette Chisholm’s Blog! This blog will provide you with valuable information, tips, and general insight into the real estate market in Rockville.