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DarlingRhadamanthus's avatar

What is the difference (in housing) from rent-to-own and/or lease with option to buy or any other similar way to buy a house?

Asked by DarlingRhadamanthus (11203 points ) December 8th, 2009

Basically, I need some real estate information (in USA.)

I would like to rent a house with an option to buy it at the end of the lease agreement. I am not sure what the technical term for that is. What are the different ways to buy a house as you rent it? (I am not sure.)

Now, let’s say I find a house for 100K in today’s market (okay, so Iet’s pretend I’m buying in Wasilla, Alaska, not Seattle.) When you agree at the beginning of the lease, can you also negotiate a price? Can you negotiate the length of the lease?

For example, say, “It’s right next to the Wasilla McDonald’s and I think that glowing M is going to keep me up all night…so I will offer you 87K for the house.” Or is this not kosher? (I suppose anything is negotiable.)

What I don’t want is to have the price of the house hiked during the lease…and I also want the option not to purchase ( for example, if the traffic next to McDonald’s is unbearable, or an earthquake hits Wasilla, or the papparazzi descend because Palin is running on a third party ticket.)

Can someone explain the pros and cons of purchases like this? Do banks do this? Where would be the best place to find properties like these? I keep seeing empty houses (some that have been empty for a year or more…I’ve been watching) and I just feel that maybe these might be open to this sort of arrangement. Is it okay to ask a realtor if the buyer would be open to a rental/purchase? (Or whatever it ‘s called.)

I am asking this question because there is one arrangement of rental/purchase that is not as smart as another…I hope someone out there can enlighten me on the different ways to purchase in this fashion. (I’m talking about US properties.)

Thanks so much!

P.S. I am NOT buying in Wasilla…I promise.

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6 Answers

YARNLADY's avatar

First, it’s all in the contract. The buyer and seller agree to the terms.

Usually Rent-To-Own means that part of the money paid every month goes toward the rent and part goes to the purchase of the house.

Lease with an option means that you buy an option to purchase the house at a specific time in the future and you rent it in the meantime.

There is also a “delayed” purchase, in which you actually make a downpayment on the house, and start paying toward ownership, but the sale is not recorded until a later date. This is generally done for tax purposes.

Your financial advisor or a good real estate agent can explain the advantages and disadvantages of each, and should be able to help you choose a plan that works for you.

DrBill's avatar

YARNLADY is correct. You do need to evaluate both options to discover which is better, either one could be better according to how the agreement is written.

JLeslie's avatar

Yes, it’s all about the contract. Everything is always negotiable, but it is good to know what is customary so the seller does not get annoyed if it seems you are pushing too far or asking too much. Although, right now the buyer has the power in the majority of the housing markets in the US. If your realtor is not very familiar with any of these (I was a realtor and never had a contract that had an option to buy or lease to own, even though we learn about it in real estate school, it is rare in the community where I lived) I would be sure to have a real estate lawyer look over the contract to make sure it actually says what you want.

YARNLADY's avatar

@JLeslie Good point. I came from a real estate family, and the number rule for buyers is to always put a contingency that the contract must be approved by your lawyer. You don’t even have to actually have a lawyer (although you should) but it gives you time to re-read the contract and talk it over with other people. You can remove the contingency after a few days.

JLeslie's avatar

Yes. Very few states require a lawyer or customarily use lawyers for real estate contracts, but I recommend it. When I got my real estate license I took a one week course and took a test, boom I can sell real estate. Over time you do get very familiar with the contracts and various situations, but if it is an uncommon transaction I would seek a lawyer even though I sold real estate myself. True you can just put the contingency just to give you some time to mull it over and not even show it to a lawyer if you want.

Handlord's avatar

The contract you’re referring to is often called a “lease option agreement,” and the good news is that in today’s difficult selling market more landlords than ever are hoping to sell this way because they were unable to sell a property conventionally.
The bad news is that there’s no listing service that specifically lists lease option agreements available at any given time in any given market; to my knowledge, the only way to find them is simply to ask prospective landlords if they’d be willing to sell to you through a lease option.
That all being said, I think you’ll have an easier time than it sounds, with so many people desperate to sell in this real estate market. As a final note, I would urge you to negotiate a price up front before signing the lease, so that there’s no ambiguity about it later. Also, make sure to emphasize your strengths as a buyer/tenant, possibly including strong credit, good income, and stable housing history.
Good luck!
-B
PS – here’s a sample lease option agreement if you want to see what they look like.

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