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Rent vs Buy in Pasadena : Real Estate Advice

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Sun May 17, 2015
Donna Baker answered:
Lease to own has fallen out of favor for many years for several reasons. Most importantly, when a seller agrees to a lease option, they agree on a sale price and a monthly "rent" that is inflated so that some portion of the rent goes into an account that accumulates a down payment. So if the normal rent would be $2,500 a month, an owner will charge $3,500 and put the extra $1,000 into an interest bearing account for the renter, who is virtually saving for a down payment. That all sounds good, except let's say the owner agrees to sell the tenant the house for $500,000 when the option is exercised. So maybe in two years the renter is ready to do that, but home values have increased, and now the house is worth $600,000. The seller still has to honor the original sale price, so he loses $100,000 in that scenario. On the other side of the coin, let's say that two years goes by and now the value has decreased, so that the house is now only worth $400,000. In that case, the buyer is committed to going forward at the agreed to price, thereby overpaying for the house by $100,000.

That's why they're not popular. In my ten years of real estate, I've never seen one offered at all.
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