Thursday, October 31, 2013

Good To Know: Selling As A Rent To Own

Why would we consider selling a house as a Rent-To-Own instead of a regular straight sell? As with everything, there are pros and cons. Of course to most people selling their home, a straight forward sell with the use of a realtor is the ideal solutions. They get the lump sum of their money up front ready to use towards their next home. But sometimes that scenario is not so picture perfect. Sometimes their are no buyers interested. The only way realtors know to sell your house is to lower the price, cutting into your potential profit and hard earn equity.

Or sometime you get in the situation where due to a drop in the housing market there is no equity in your house. In fact you owe more then the house is worth. This as happened to a lot of people, not only in the US but right here in Alberta and across Canada. Your options are now drastically lowered. You can no longer rely on the help of a realtor as there will not be enough room for their commission. As long as you do not have to move and sell your house you'll be okay. But if the situation change, then there is trouble.

Or there are also the new builders. Building the house of their dreams while living in their current home. When the new house is ready, the plan is to sell the old one. The problem arise when the old house is not selling making you support two mortgages. Ouch.

In all of these situation a Rent To Own can help. First lets discuss what a Rent To Own really is. It is renting a house then to sell it at the end of an agreed term.

The pros:

  • You are dealing with tenant-buyers instead of renters; they have an owners mentality and since they intend to purchase the house, they treat it as their own. Also they are responsible for maintenance and minor repairs.
  • Get top value: Tenant-Buyers are people who don't quite qualify for their own mortgage may it be a credit issue or lack of full down payment. However they have been qualified by a mortgage broker to ensure they are able to handle the payments. Rent To Own gives them a few years to fix their situation. You can then require fair market value for your house.
  • End up getting more for your property: By having you mortgage payments taken care of for the terms of a few years, it is lowering you mortgage balance forcing appreciation for your property.

The cons:
  • There is a delay in getting paid. Although you will get monthly payment covering the expenses of the house you will not cash in the full payment of the sale.
In this real example the owner had a mortgage exceeding the value of the house. Unfortunately do to new employment they also had to move and sell the property. Since there was no equity into the property a realtor was unable to sell their property. As you can see it would not have been in their benefit to do so anyways. In this case it did not put the sell into a positive solution but it did dramatically lower their loss.

Rent To Own may not be the best solutions for everyone but in many cases, it can increase you return on the sell of your property and facilitate a sell.