Rent to own or Lease purchase ..Good Idea or Bad? Are there any legitimate companies...?

Asked by Mari, Elk Grove, CA Fri Sep 18, 2009

Just curious what you think about rent to own. We are going to lose our home in a few months and are going to move back to san diego. I was looking at this as a option because our credit will be very bad and we need a nice place to rent , safe area, good schools for kids 18,14,10 yr old honor student (girl& 2 big bro) 2 chihuahuas( 5 pea Total) We are looking for a very inexpensive place.Townh/house, garage hubby has a corvette dont want to have to worry about theft or safety. No have not received a NOD yet may get in Oct or Nov.
We are not ready to move yet as we are trying to save the money we will need in the next few months.
Thank you & God Bless** Mari email:

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Stacey Wyatt, Agent, Roswell, GA
Fri Sep 18, 2009

If you are just looking to find a nice place to shelter your family while you endure this trying time, then I would find a rental opportunity that best suited your family. If you find a home that you fall in love with and could see yourself living in, then by all means I would go the Lease Option (L/O) route... it offers the best of both worlds... depending on the Landlord's objectives they will most likely let you rent anywhere from 1 to 3 years or more... if the House is the Landlord's current primary residence, then they may not be flexible on the length of the lease... they may be trying to ride out the market until it improves and they can sell... if it is owned by an Investor, then they may be willing to let you live in it for a much longer duration...

Lease Option Pros:
1. You can lock in a Sales Price at today's market price, for a period in the future... since the market can only get better, if you or your Agent can negotiate a great deal then you will be the beneficiary of any appreciation should you buy it down the road.
2. Most Lease Options, will offer you an incentive for making payments on time... on my investment properties, I would offer the Tenant $100 Credit per Month if payments were made on or before the Due Date... so if they paid on time for the 12 months they lived in it, they would have earned $1,200 off the Sales Price on the house when they but it.

Lease Option Cons:
1. In your situation, you will need as long a L/O Term as possible... if your current property will be foreclosed on then your Credit will take a beating as you know... you will then need 3 - 5 years to get approved down the road depending on how long it takes to repair your Credit... so try and get a 3 Year term...
2. Most L/O Agreements require a significant "Option Payment" which is similar to a "Security Deposit". I typically require a minimum of a 3% Option Payment upfront... so on a $200,000 House, that would be $6,000. If you close on the house down the road, it gets applied to the Sales Price... if you don't close on the house and walk away, then you would lose it.
3. I always run Credit on my prospective L/O purchasers... I know going in most people that want a L/O are going to have less than perfect credit... I am most concerned that they have steady employment and have the ability to meet their montly obligations... not all do, but you need to be aware this might be a hurdle.

Other Thoughts
If you are short on cash, then you might want to call your current Lender and see if they have a "Cash for Keys" program... your Lender will typically pay you a few thousand dollars in exhange for the keys to your home before Foreclosure... it is their incentive to keep the house in as good of shape as possible, before they take it back... it puts some cash in your pocket to help you on your next phase in life...

Good luck and best wishes!!!
1 vote
Erin, , South Lake Tahoe, CA
Sat Sep 19, 2009
Hi Mari: The only thing I want to make sure you consider is a short sale versus a foreclosure. After a short sale, you may have to wait only 12 months to purchase a home again. With a foreclosure, the wait is 5 to 7 years to qualify for a loan again. Since you don't have a Notice of Default yet, now is the time to pounce on a short sale. Whatever you do, don't do "nothing." Your other options include

Deed in Lieu of Foreclosure
Loan Modification
Short Sale

I always recommend that you seek the advice of legal counsel in your situation.

I am an experienced Lease/Option Realtor, and I seriously doubt in California if you can get locked into a purchase price for a lease option at today's prices. You will most likely pay appraised value as of the time you exercise your option (purchase your rented property).

Erin Phillips
Keller Williams Realty
Lic # 01474901
Web Reference:
1 vote
Keisha Mathe…, Agent, Elk Grove, CA
Fri Sep 18, 2009
Absolutely a good idea. Get everything in writing and be comfortable with the terms. Use an agent (REALTOR) who has negotiated a lease option before, and you should be fine.
1 vote
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