Looking for Lease Option to Buy Homes

Asked by Channel, Saint Louis, MO Wed Mar 19, 2008

I am looking for a Lease Option to Buy Homes in the Pattonville, Clayton, Ladue or maybe the Normandy area. I want someone that would work to find me the best possiable rate.

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7
Don Tepper, Agent, Burke, VA
Wed Mar 19, 2008
BEST ANSWER
Dale's advice on lease-options is basically solid, and I recognize that practices vary from area to area. However, let me--if not correct, at least--comment on some of her statements.

Dale says: "The sellers typically fall in one of two categories - a) investors who routinely have homes that they rent out that will consider also selling them and b) home owners who have not been able to sell their homes who will consider renting them out or doing a lease purchase sale." In today's market, the large majority of lease-options are coming from owners who haven't been able to sell their homes. Yes, some investors do make homes available but (and I'm a real estate investor, so I'm just being honest here) some investors really hope the tenant-buyer does not purchase. It can be pretty lucrative collecting an up-front option fee, plus slightly above-market rent, and repeating that entire process every year or two. The property can turn into a cash cow. Now, lots of investors don't do that. But be careful that the terms and conditions look do-able during the option term.

Dale writes: "a) the seller will want to check your credit and have you talk to a loan officer to get a preapproval letter - they will want to know that there is a good chance that after the 6 months to a year (occasionally longer) that is negotiated into the contract that you will rent the home before you then buy the home that you will then be able to get a loan and buy the home." That's good advice for sellers, but not all of them do it. And they recognize that if you're trying to buy a house on a lease-option, you're not likely to be able to get a preapproval letter. As Dale correctly observes: many buyers are "waiting for their credit history to improve/or to build up financial reserve" In other words, they can't buy now, or at least they can't qualify for what they want...but in a year or two they may be able to. And, to oversimplify, there's "good" bad credit and "bad" bad credit. It's often OK if the tenant-buyer had a good credit history, then encountered some problem (job loss, medical bills, etc.) that affected his/her credit. That can be improved, and it's an indication that the tenant-buyer has a positive attitude toward paying bills. "Bad" bad credit describes so-called "deadbeats." They habitually don't pay bills; they routinely skip out on landlords. A close examination of a person's credit report will help determine which category the person falls into.

Dale says: "The seller will typically have a more stringent earnest money payment that you will lose if you back out of buying the home, since they will have taken the home off the market for much longer for you. " Not always. First, it's not earnest money. It's an option fee, which is credited to the purchase price if the option is exercised, and is retained by the owner if the option isn't. Second, to the extent that the owner had been trying unsuccessfully to sell the property, he/she is willing, even happy, to take it off the market and to get some cash flow from the property.

Dale writes: "some sellers will essentially have you pay the typically rent payment and will take a portion of that and put it toward the purchase price, others will add to that payment for the purchase price - what will determine that will be not only the going rate in the neighborhood, but if the home is paid for, or if they are paying off their mortgage still. If they are still paying off their mortgage, they will not be as flexible on pricing or as willing to work with you on a lease purchase as someone whose house is paid for." Generally true. Remember, though: Everything is negotiable. Some owners will take less in monthly rent in return for a higher purchase price. Some will offer a couple of options on rents and rent credits. For instance, if the typical rent for a property is $1,000, the owner might only charge $1,000 and credit $100 of that to the purchase price. Or he might charge $1,100 and credit $100. Or he might charge $1,200 and credit $200, $300, or even $400 to the purchase price.

Dale writes: "d) if the seller needs the money to buy their next home, they aren't as likely to want to do a lease purchase." More to the point, they can't. They need their money out of the house. Now, if they don't need all their equity, they can tap some of it, via a HELOC, for instance, and use that money for their next purchase.

Dale writes: " St Louis MLS that all the Realtors use to find homes for people, has no category for lease purchase. We can search for homes for sale, we can search for homes for rent, but we can't search for homes for lease purchase....As a result the best is to search the database for rentals and to look for words in the marketing comments that indicate that the owner will also consider a lease option." Yes, that's one way, but there are many others. Look for expired sales or rentals. Look for sales with long days on market.

Out of space...but many other ways.
0 votes
Lisa Dickers…, Agent, Saint Charles, MO
Sat Jun 12, 2010
If you have not found your home yet. I have a 1 year lease to purchase option in O'Fallon that may be of interest. Check out http://www.6cornell.com
Web Reference:  http://www.6cornell.com
0 votes
Jejcaj04, , Monmouth, IL
Wed Aug 5, 2009
yes I am looking for a home to rent with the option to buy in the St Louis County areas, close to Ladue I am a retired law enforcement officer from St. Louis and I live in Illinois and want to relocate back to St. Louis
0 votes
Laurie Helde…, Agent, St Louis, MO
Mon Jun 30, 2008
Channel,
I have a nice 2 bedroom lease option that has been completely redone. It is located in Florissant, MO.
Here's more info and pictures http://maris.rapmls.com/scripts/mgrqispi.dll?APPNAME=Gstl&am…
0 votes
Randy Robins…, , Saint Louis, MO
Wed Mar 26, 2008
The information provided by Dale and the others is basically sound. However, our team does work with investors who are willing to assist people with damaged credit get into a home. They will evaluate your credit, put together a plan for you to raise your score, go through the home search process with you, and help you get into a home that YOU CHOOSE. If you would like more information please feel free to visit our website and contact us.
0 votes
Dale Weir, Agent, Chesterfield, MO
Tue Mar 25, 2008
While Don has some excellent points, keep in mind that the St Louis market hasn't dropped like many other areas of the country have. In St Louis, in particular in the Pattonville, Clayton and Ladue areas, the market is still very strong. They have good school districts, solid economies, and are considered excellent places to buy a home in, as a result, their days on market for homes that are priced correctly are still relatively short, so sellers aren't turning to lease purchase in those areas. I sold a home in the Maryland Heights area in a week recently and one in Creve Coeur/Ladue School District in a month. Both were priced correctly and got close to 100% of list price when they sold. The homes that I'm seeing turn into lease purchase homes are those that are extremely dated and the families don't want to update them when the elderly parents move into nursing homes and they aren't quite ready to sell yet.
Web Reference:  http://www.yourstlhome.com
0 votes
Dale Weir, Agent, Chesterfield, MO
Wed Mar 19, 2008
OK, I have worked with a number of buyers and sellers in your situtation.

There are some lease purchase homes available in those areas. The sellers typically fall in one of two categories - a) investors who routinely have homes that they rent out that will consider also selling them and b) home owners who have not been able to sell their homes who will consider renting them out or doing a lease purchase sale. The buyers typically fall into one of two categories also - waiting for their credit history to improve/or to build up financial reserve or getting ready to graduate from school (or similar situation) which will put them in a totally different economic situation.

Things that you as a buyer need to understand with a lease purchase from the sellers situation:
a) the seller will want to check your credit and have you talk to a loan officer to get a preapproval letter - they will want to know that there is a good chance that after the 6 months to a year (occasionally longer) that is negotiated into the contract that you will rent the home before you then buy the home that you will then be able to get a loan and buy the home.
b) The seller will typically have a more stringent earnest money payment that you will lose if you back out of buying the home, since they will have taken the home off the market for much longer for you.
c) some sellers will essentially have you pay the typically rent payment and will take a portion of that and put it toward the purchase price, others will add to that payment for the purchase price - what will determine that will be not only the going rate in the neighborhood, but if the home is paid for, or if they are paying off their mortgage still. If they are still paying off their mortgage, they will not be as flexible on pricing or as willing to work with you on a lease purchase as someone whose house is paid for.
d) if the seller needs the money to buy their next home, they aren't as likely to want to do a lease purchase.

Note that on a lease purchase, the seller's biggest fear is that after 6 months to a year of essentially renting the home, you back out of the contract and don't purchase teh home and they have trouble getting you out of the home in order to put it back on the market to sell it to someone else - perhaps you've found something you like better, perhaps you can't qualify for the loan, the reasons are endless. They also have to worry that as a tenant, you may not have taken the best care of it (though their hope is that since you would be intending to buy it, you would have been maintaining it in the same manner that you would be maintaining it if you owned it)

On your side, you've got 6 months to a year in the home to look at it as a tenant, you won't be able to make improvements without the owner's permission (since it is their home, not yours). You will see the warts in the home (all homes have them, there is no perfect home, even if you build it yourself) and in the neighborhood. If you have any issues with your credit or need time to build up your financial reserves, you'll have time, but you will have to discipline yourself to do that.

Now, one other factor that you need to understand is that the St Louis MLS that all the Realtors use to find homes for people, has no category for lease purchase. We can search for homes for sale, we can search for homes for rent, but we can't search for homes for lease purchase. In today's market, that is an issue that the Realtors have asked be addressed, but as of this point, the main database does not give us that option. As a result the best is to search the database for rentals and to look for words in the marketing comments that indicate that the owner will also consider a lease option.
Web Reference:  http://www.yourstlhome.com
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