Sue Archer

The concept of 'rent to own' had been used in the past for people that couldn't get the downpayment in order to purchase a home outright. There a few factors included in a 'rent to own' agreement. One is a standard rental agreement. This would include a security deposit, length of time, rental amount etc. all defined as any other rental agreement is defined. The second part is the option agreement. The rent to own option is defined for a certain amount of time, during which you could exercise this option to buy, at a specified price, and some portion of the monthly rent MAY be applied to the purchase price, (not always). For this option, the buyer/tenant would often provide an option amount of some significant amount ($2,000-$10,000?) that would be non refundable should they decide not to buy the property.

When you look at today's market, I'm not sure I've seen many situations that would make this a good alternative for a buyer/tenant. One, the price of homes are declining, and over the length of the time the home may be worth less than the agreed upon price. The option amount may be cost prohibitive. You may find a better alternative is to just rent now and buy later, or buy now using many of the FHA backed loans available. Paying an option amount in a declining market is probably a waste.

For sellers today, they expect that a tenant who has a rent to own contract, will maintain the property better, considering that they see it as their own, and sometimes they are willing to pay more in rent. Last, some feel that they are hedging their bets against a further decline in property values.

As for Elk Grove, there are so many wonderful buys in Elk Grove. I would seriously look at your financial situation and see what is the best alternative for you. Rent to own is one alternative. I'm just not convinced it's the best in this market.

Great question Moe! - Sat Jul 5 2008, 20:36

Sb, I think your market in LA is different than Sacramento. We can cashflow a property now....meaning, they can buy for about what they pay in rent. Not only that but with the FHA programs, they can get in for close to nothing down, vs. paying first month's rent and security when they rent. Maybe it will be even better in a year, maybe not. We're there now where it's worth considering, here in Sacramento. - Mon Jun 30 2008, 21:34

Darin made a good point. I prefer to buy in the winter months, when I think less buyers are out there, and that's not based on specific stats but because our general buying trend is that more families buy in the spring/summer if they have school aged kids to have them settled for the new school year. In Sacramento, with holidays and lots of rain in the winter, there's less people who want to schlep through houses in the rain.....but see, there's always a response that buyers don't like to go out when it's really hot either. That's just my own personal opinion on when I like to buy as an investor....

Sue Archer
Realtor, GRI, ABR, SRES
The Galster Group
(916) 847-9686 - Mon Jun 23 2008, 11:53

Personally I think it's an investor's market, which is why I'm personally looking...but the key is cashflow, not appreciation. And then there's your personal preference on area. Elizabeth had made some good points on selection based on age of home (thus requiring less maintenance). My criteria is a little different- My focus is both cashflow and future resale value (which affects the TYPE of home I'd buy, not what I think the future value will be). I am looking for ones in the immediate area (vs. my properties in Las Vegas), and am now focusing on ones that are NOT traditionally in a rental type neighborhood. In that way, when I decide to sell, I would attract both investors and first time homebuyers. I am looking for homes between 1200-2000 square feet as well because there is a bigger market for that size home than others (in my opinion), no pool or water feature, and a lot size under .20 acres.

As for cash flow, lenders require a minimum of 15% on a loan for non-owner occupied homes. I still calculate the cost of that downpayment into my cashflow analysis. (I would at least be making 2% if I had it sitting in a CD so there IS a cost to that downpayment money in lost opportunity) If you want more detail on analyzing cashflow, just ask. It's outside the scope of your question here.

Sue Archer
Realtor, GRI, ABR, SRES
The Galster Group
(916) 847-9686 - Mon Jun 23 2008, 08:39

I understand your frustration, having been on both sides of a short sale transaction myself. Bill explains it best, and with only 1 out of 12 short sale listings actually closing, the odds are that you're wasting both your buyer's (and your own) time. Therefore, with a buyer, I educate them on the situation, show them everything else first, and if I have to resort to short sale listings, I grill the listing agent pretty hard to make sure that they have some experience with short sales, and have a commitment from a bank.

When I have a short sale listing, I press pretty hard in the advertisements that I have the qualifications to close this, and the bank is committed as well. - Mon Jun 30 2008, 09:02

The Calvet and VA programs help provide funding to get you into a loan, and provide some 'insurance' for a lender, but don't actually hold the mortgages themselves, as far as I understood....but I could be wrong on Calvet. You need to call your lender directly, ask to talk to the loss mitigation department and explain your situation. They will try to see if they can help in modifying your loan.

Be aware that they will ask you very specific questions on your income, expenses, and what situations may have brought on the change in your financial situation. You said taht you have had recent changes in your income. They will want to understand if it's a permanent change or temporary. Based on that information, the bank may offer a termporary change in your mortgage terms, permanent, or reject any change. In addition, if you get a 'no' on the first attempt, there's nothing to say you don't keep asking....sometimes their policy changes...

Hopefully that helps. Just don't be afraid to ask.... - Fri Jun 27 2008, 14:58

Cesar you bring up some great ideas....although we are straying from the original question...
I read the linked article...always fascinating to read a document from 2 years ago, and still appropriate today. According to Robert Kiyosaki (Rich Dad, Poor Dad), your home is not an asset. And while we could debate that, a home is necessary to live in, whether you rent or own...you need a place to live, which is why he lists it as an expense. I say, it can be a little of both, but you don't want to risk it by buying outside your means, as many have.

Buy a home now, if it's within your means, and it meets your living requirements. There are many bargains out there, I personally I believe in home ownership vs. renting in order to build assets.
I don't believe EVER in buying a house now, with the idea of refinancing in the future. Read Suzy Orman's philosophy (of buying down your mortage as soon as possible), or 'The Richest Man in Babylon' book, written in 1940 and STILL relevant.

We all need (all ages) some more financial education....so I appreciate this debate.

Sue Archer
Realtor, GRI, ABR, SRES
The Galster Group
(916) 847-9686 - Mon Jun 23 2008, 15:11

I heard someone give this analogy to trying to find the 'low' in the real estate market-

If you were bouncing a ball, can you catch it when it hits the floor? Especially when a ball is so much more predictable in that you know the speed at which it's bouncing, about high it will go up, and also, you know where the floor is.

So if you can't catch a ball at the lowest point, then why do people think that they can predict the low in the real estate market??? And does it matter? If the home is affordable to you, and it makes good financial sense in your plan, then buy it now. As Frank so eloquently explained, I believe, that in the current market, interest rates are more likely to go up (and that's a commitment for 30 years), than home prices are going to go down, (if at all ) in the price range you're referring to.

Read 'The Richest Man in Babylon' and 'Rich Dad Poor Dad' (better yet get the game it really is great education on financial matters such as this). You'll figure out your personal approach to a financial plan, and that includes buying real estate.

Good luck J!

Sue Archer
Realtor, GRI, ABR, SRES
The Galster Group
(916) 847-9686 - Sat Jun 14 2008, 06:43