Lease Purchase, Rent to Own

Rent to own and lease-purchase agreements are cropping up in the Greater Phoenix real estate world these days. They’re a natural result of the continuing tight credit market.

Lease-purchase and rent to own are essentially the same things.  A lease with a purchase option is almost the same, just with more complicated legalese thrown in there.

We don’t typically assist folks with leases that turn into purchases, no matter what the terms. We feel strongly that you really should hire a lawyer if you’re going to do anything that involves renting a house now and buying it in the future.

Here’s some brief thoughts on the situation; I took these from a quick email I sent out earlier today to some friends of ours.

Rent to owns (lease-purchase and lease-purchase options) are usually a little tricky --

  • does tenant pay a little extra each month towards down payment?
  • or does the tenant pay a lump sum amount now? (usually several thousand dollars!)
  • if so, who's bank account “gets” the deposit(s)? does that money earn interest? for whom?
  • under what circumstances are extra payments refundable?
  • what happens to that extra deposits/payments if the rent is late a day or two? if it’s late several weeks?
  • do you value the purchase price of the home now or in several years when the purchase happens?
  • do you get an appraiser? who pays for the appraiser?
  • what if the appraisal comes in lower than the agreed-on purchase price?
  • what if either side changes their mind between now and the purchase?

As you can see, there are a lot of questions. We recommend you hire a real estate attorney to help you figure out the answers. Call or email us, we know several excellent Greater Phoenix attorneys!

Tip for New Real Estate Investors

Falling prices and historically low mortgage rates are bringing a flood of new real estate investors into the metro Phoenix market. It's fairly easy in many parts of the Valley to buy a small house, put a renter in it and realize a positive monthly cash flow immediately.

Here's a very brief tip for all the rookie landlords. Budget to replace the carpet and paint the entire interior every time a tenant moves out. Set aside several thousand dollars for this.

This way, if the house needs it you'll have the money. A freshly painted & recarpeted home will rent quicker than one that's been only cleaned. And if The Perfect Tenant just moved out and the home doesn't need new paint & carpet, you've got a nice little savings account. Which is good because houses always need something.

Rookie landlords: Budget for the expenses, not just the income.

New Rental Scam

Head’s up, there’s a new scam in the landlord / tenant world. Funnily enough it involves Nigerians emailing you to send them money overseas.

Fredericksburg, VA Realtor Sarah Stelmok found her own house (which she was living in at the time) listed online as a rental. She did a little digging, chronicled it on her blog, and found …. well, you can read it yourselves. It’s long but shockingly difficult to stop reading.

If you’re a tenant looking for a rental home, do yourself a favor. Check out that the person you’re dealing with is actually the owner of the home. Check tax records in Maricopa County (which covers most of metro Phoenix) to make sure the name on the tax records is the person you’re dealing with.

If the landlord is working through a property manager or Realtor, make sure at some point you see a document that grants the manager/Realtor the right to represent the landlord. The landlord and his/her representative should have both signed that document, and it should have a begin and end date.

It’s a wild world out there. Remember that if it seems fishy it probably is.