Rent vs Buy in Charlotte>Question Details

Jane Cross, Real Estate Pro in Charlotte, NC

In this market, can someone explain the true up side of a lease-purchase for the buyer?

Asked by Jane Cross, Charlotte, NC Wed Jul 1, 2009

It seems this is really just a good deal for the seller. There is such a surplus of inventory, why would a buyer view this as a good path to home ownership? I come across this time and time again, and perhaps my understanding of the lease-purchase is skewed. My understanding is that you pay X amount of dollars per month, like a regular lease, then a little over the top of that, which is put aside for your downpayment, should you decide to go forward with a purchase at the end of the lease. If you decide not to go forth with the purchase, the excess money stays with the seller. It ties the property up for no one else to buy it, but really, my market is not so unique, that one couldn't possibly ever find something comparable in a year. Do I have this picture right?

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Celine F’s answer
For the buyer, lease purchase is good when the buyer can not qualify for mortgage now but want to move in to a house sooner than they can actually own it. The surplus of inventory is created by the fact that many interested buyers can not qualify for mortgage.

For example, people who got increase of income recently from a job promotion want to move in to a better neighborhood... but if they got to wait for the 2 yr stable income, they can't buy the house now. Or someone with less than perfect credit, not enough down payment etc.

For the buyer, it is also good to lock in a future purchase price. In case the value goes higher in a few years, they could have locked in a better deal. If the value goes down, the seller will most likely have to sell at whatever it appraise for at that time.

The option consideration is the down payment when buyer decides to exercise the option, and would be forfeited if buyer breaches the contract or decide not to purchase.

Extra monthly payments going towards the equity is not necessary. In case the renter breaches, it is usually an eviction because the property is being rented until they buy. But if some rent goes toward the equity, then there could be more trouble to process the eviction or it could be as much work as foreclosure.

Service providers get pay by transactions. In this market, anything you can do creatively helps. As a realtor, you can get paid when the property is leased, and then again a yr or two later when it is sold.

Hope this helps :-)


Celine Fang
Residential Property - Private Financing Consultant
Immi-Nest, LLC
504-723-9269
http://www.imminest.com

Ask me about Seller Financing: 560 Credit Scores, 5% Down Payment, 30 Yr Fix Financing.
0 votes Thank Flag Link Thu Jul 2, 2009
This could be an advantage to both buyer and seller in some situations. There are no two situations a like. I would suggest an Agreement for Sale or Exact Wrap of the existing mortgage with buyer claiming property taxes and a 5 year or 10 year call. As a seller - I prefer this on rentals so i don't have to claim all the capital gains at one time.
0 votes Thank Flag Link Mon Jul 27, 2009
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