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This Old Crack House

From log house to farmhouse. Farmhouse to townhouse. Townhouse to apartment house. Apartment house to crack house. Crack house to our house. Our house to our home.

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Tuesday, October 14, 2008

Land Contract vs. Rent to Own

You may have heard of these two terms in the past but not understood them fully. They are both forms of owner financing a real estate sale. You can Google both terms to find out more information than I will provide here because I'm not a real estate agent or a whiz at financing. Just someone who is aware of numerous ways to creatively finance a home sale.
Rent to own means just that. You set a price value on a house with a prospective tenant interested in ownership but lacking the credit or large down payment needed to buy a house at the present time. You get a down payment which is basically a right to exercise an option to buy a house at a pre-determined price for a period of 1 to 2 years. The option amount and a portion of the rent paid is applied to the purchase price if the option is exercised and becomes equity for the buyer. Real estate taxes are not required to be brought current until the house is sold under the option. This type of arrangement makes code enforcement, tax liability and maintenance the responsibility of the seller for the rental period. The seller also has the right to sell the property to another who will uphold the rent-to-own contract or increase the sale price of the house at the end of the option period.
A Land Contract is a sale of the property but a withholding of the deed by the seller until final settlement. A price is agreed to and the buyer pays principle and interest to the seller. Since a land contract can be filed at the county records office, the taxes must be paid current to the day of the contract by the seller and a recording fee is involved. The buyer should expect to incur some closing costs as a result but these are often applied to reducing the principle. The buyer is responsible for taxes, insurance and maintenance of the property. After a set number of years, generally three to five, the balance owed to the seller is paid in full by a conventional refinance through a mortgage company or a bank. At this time the deed is transferred.
In both cases, if the contracts are not complied to by the buyer, the property becomes the responsibility of the deed holder except with a land contract, the equity acquired by the buyer is generally refundable to the buyer as a result of liquidation of the property at auction if necessary.
So, if you want to buy a house and your credit is currently shaky, find a seller who doesn't need the money right away and work out a deal that benefits both parties. You don't need to look for "For Sale" signs either. You can always walk up to someones front door and make an offer though it is less likely to be accepted. Now if anyone wants to offer me a cool million $$$ for the "Crack House" I am all ears!


At 10/26/2008 11:46 AM, Anonymous Anonymous said...

Back in the 80's when we had double digit interest rates, lease to own was not an uncommon option for buyers.

Beginning in the 90's, subprime lending made lease to own unnecessary.

With the subprime implosion, we are seeing more Lease to Own homes (these can also be listed through an agent on the MLS, btw), and this trend will continue as getting a loan is tough for the people without spotless credit, and there is a glut of property on the market right now. It can be a win-win for both the owner and the buyer.

I've been watching your adventures in real estate, and am very happy it appears to working out for you!

At 10/17/2010 10:11 PM, Anonymous Anonymous said...

I think anyone wants to have their own home. But for those who just started to live on their own, renting an apartment could be a good option. I rent one of the affordable apartments for rent in Simpsonville. I chose to rent an apartment because it fits my budget as a bachelor, and it is near to my office. I'm worry free, because the emergency maintenance of my apartment is 24 hours.


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