My Associate has been doing Lease Purchase deals for over 5 years (with an 80% success rate)....in TEXAS...where many people say that they are "illegal", another Associate in the Oakland, CA has been doing this successfully for years, and Bob Bruss was a Broker in California and as Dirk Zeller stated..."He (Bob Bruss) educated consumers, real estate agents, buyers, sellers, and investors. Sometimes his commentary was critical of the real estate agent community and sometimes he championed the cause for real estate agents being treated professionally and ethically by consumers. The one thing you know about Bob was that he would tell the truth as he saw it. He didnâ€™t pull any punches in how he told it. You didnâ€™t have to guess his opinion or views on the subject of real estate." If Lease Options were good enough for a Mentor like Bob Bruss, or currently good for Bill Bronchick, Wendy Patton, MIchael Carbonare, Brian Gibbons, John Jackson, The Real Estate Guys (also in CA http://realestateguysradio.com/) = Robert/Russ/Bob, Rick Seigler, or Vicky Greene...they are good enough for me.
BTW....A Lease-to-Own, in real estate circles, is also a form of Seller Financing. As far as the "triggering" the dreaded "Due On Sale Clause", how many banks have you known to purposely call the loan due, especially in this market. That would mean that they take on another property in their portfolio. Be transparent and clear with your explanation that you are simply leasing the property (as any landlord does) but you are giving them the right to buy it at the end of the lease and if they actually have a problem with it, then.....A) The bank is a moron and B) Don't do it.
You mention the "hard realities of the impossibility of figuring out the future price of real estate....". What if you just set the price at it's current market value? Wouldn't that be simple enough? Isn't that what you do with a traditional buyer and seller? If the market goes up after a traditional buyer purchases the house, they are glad, if it goes down, they are unhappy. If the market goes up after a seller sells it traditionally, they lose out, if the market goes down, they are thankful they sold when they did. Isn't there always a "winner & loser"?
Or what if you set a "stop-loss" amount so that if the property doesn't appraise for a certain amount, then the seller doesn't have to sell, and the buyer doesn't feel obligated to purchase the property (although they would lose any rent credits and/or option consideration).
Or what if you took the average of two appraisals at the time the option is exercised? I could go on and on.
Granted....Lease Options are not for everyone (similar to the fact that not all Agents will feel comfortable/willing to negotiating them) as they offer alternative ways to buy and sell which might not be within every consumer's comfort zone, but for every hole you try to shoot in the "Lease Option Love Boat", I can come up with a way to fill that hole with Billy May's Mighty Putty. I attended a seminar on Lease Options, where one of my Mentors fielded questions for a full hour on "what if's & yea...but's". Every time, he offered a solution.
I DO agree with Ms. Byrnes on the fact that you should use a KNOWLEDGEABLE Real Estate Attorney and Mortgage Lender so that there will be no confusion as to who is responsible for what and when. The more understanding that is done prior to entering into the deal, the better.
I have written in my blog different ways to find a Lease-to-Own property with and without the help of a Real Estate Agent. Here is the link to check it out:
Here is another great article by the late, great Real Estate columnist Bob Bruss where he explains Lease Options and their benefits. He was very respected and well known as a real estate author with his syndicated articles in all major newspapers, as well as being a real estate lawyer & real estate Broker:
*Keith....I would like to commend you on your unbias and fair answer. You displayed the issues yet possibilities for doing a Lease-to-Own. (as i'm not really familiar with the Redondo area)(I play beach volleyball too, btw)
*Sharona......You may want to take some pointers from Keith or read a little more Bob Bruss articles like the one above. You state: "For that reason - it is nearly impossible to negotiate a lease-to-own, and not usually in your best interest either." My question to you is how much have you educated yourself on creating a win~win for both parties? Are you giving your opinion based on personal experiences or "stories you've heard from people and other Agents"?
An Agent is only as good as their experience and willingness allows them to be. Typically, Agents bash Lease Options because they have no experience with them or it's not in THEIR best interest to enter into one. They are typically trained to enter into a hard and fast concrete agreement and do things "traditionally". If more Agents would EDUCATE THEMSELVES on doing more creative techniques, not only could they offer better information, but they could open themselves up to making more money while expanding their base of clientele. ***See Gary Keller's (of Keller Williams fame) book "Shift" (specifically Chapter 10) which outlines ways for Agents to adjust to the changing paradigm.
Lease options or lease to own homes are fairly rare situations in Redondo Beach but that's not to say that they aren't out there. Your best bet is to talk with a real estate professional in the area as they will both have access to Redondo Beach home and lease listings, but may know of situations in which a homeowner may be looking for this type of situation. It might also be possible to work with a realtor to find a home that has been on the market for some time as the owners may be a bit more willing to get creative. If you have any questions or would like more information on homes in the area please feel free to contact me or visit my website below.
As you can see, your question really gets people talking :). I wanted to extend my previous answer. My position is based on a combination of my own personal experience as well as that of my broker, who has over 30 years of experience in this area of Southern California.
The purpose of creative financing is to create win-win situations for both buyer and seller. There are many ways to do that, however, in my experience lease-to-own is not one of them. This is not due to being an agent, or has anything to do with commissions. This is because of the hard realities of the impossibility of figuring out the future price of real estate, and because of how difficult it is really value a lease option. The amount of money it takes to ensure that sellers will forgo a sale today for an uncertain sale tomorrow is usually quite high, which makes buyers unwilling to consider lease options.
As is noted in the linked article from Darin, there are many ways to look at creative financing. Most include the owner providing some type of financing. In California, although many of these types of financing are legal, many of them are unworkable if the seller has any loan on the property that will not be paid off with the upfront cash in the transaction. This is due to the "due on sale" clauses in most loans that trigger upon any title transfer, which includes both land contracts and something called AITDs or wrap-around trusts.
In Darin's links it mentions searching both on and off the MLS. If you are going to pursue this route, I recommend you get an experienced Agent and/or Real Estate Attorney, as even when a seller advertises that they are willing to do seller financing, it might not be easy or legitimate. I recently worked on a deal where it was advertised that the seller would carry financing, but upon researching it he wouldn't be able to do it without hiding it from the bank. Needless to say, that was unacceptable to both my buyer and to me.
If you would like more information, or can provide more specifics on your situation, please feel free to contact me or another agent experienced both in Redondo Beach and in alternative financing methods. Best of luck!
*Darin - I hope you can see that this is not a "bias" against lease-to-own that is based on inexperience or a desire for a commission. I think we do a disservice to the community when we are not upfront about the difficulties of certain type of transaction. I personally have tried to negotiate lease-to-own deals as well as seller financing deals and have seen firsthand why lease-to-own is almost never the win-win it looks like. Seller financing, on the other hand, can be a great win-win for both parties, especially in the current environment. It just needs to be handled with clear communication to both buyer and seller about the opportunities and the risks.
I do have leases for Redondo Beach. Lease to Own however has to be negotiated with the owner of the property on a case by case basis. Some sellers are interested, some....not so much. There are actually very few who will consider it, but it is something you can discuss with your Buyer Agent once you start working with one.
Beware of websites that advertise "Rent To Own." There are a lot of scams out there that love to take advantage of the dream of homeownership!
Keller Williams Realty
For that reason - it is nearly impossible to negotiate a lease-to-own, and not usually in your best interest either.
If you can provide more of your reasons behind considering lease-to-own, it may be possible to give some more specific guidance.
Additionally, if what you really want to do is to rent a home that you might eventually want to buy, then working with a realtor to find homes that are either for sale currently or for rent, and then speaking to the owners to find out if they might eventually be willing to sell, might be close to what you are looking for without the downside of an actual lease-to-own contract.