Why Should a Seller Use a Lease to Own House Agreement?
In brisk real estate markets when homes are selling quickly, most sellers would not consider offering their homes on a lease-to-own basis. But when owners are struggling to sell their homes, these arrangements can make financial sense. If owners can't sell their homes, they can at least earn rental income with the hope of a future sale.
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Least-to-Own Basics
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Before determining if lease-to-own arrangements make sense, home sellers need to understand the basics of how they work. Under such an arrangement, sellers rent out their homes. The renters, after the lease's term ends, have the option to purchase the house. If they decline this option, they can either negotiate another rental lease or move out of the home. While renting, tenants pay a certain amount of money extra each month. These dollars are used to reduce the eventual purchase price of the home if the renters decide to purchase when the lease ends.
Slow Markets
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In slow real estate markets, lease-to-own arrangements often make sense for sellers. Those sellers who've tried unsuccessfully for several months to sell their residences might consider taking on renters on a lease-to-own basis. This gives them rental income while the lease is active. And when the lease ends, homeowners might nab a sale without having to list the house on the Multiple Listing Service or market the home.
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Low Offers
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If potential buyers are only offering low bids on homes, owners might benefit from lease-to-own. By taking on renters for a specific number of years, sellers can take a break from a difficult market. If their renters don't buy the home when the lease period ends, sellers can put their residences back on the market. Maybe by then, the real estate market will have improved and sellers will nab higher offers.
Owning Two Homes
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Lease-to-own can make sense, too, when sellers have purchased another home and are struggling to sell their current residence. Instead of accepting a lower-than-desired offer on these homes, sellers can offer them on a lease-to-own basis. This way, during the lease period, they'll have rental income coming in each month. This income can help cover the extra mortgage payment they'll have to make. For many sellers, this is a better option than having to sell a home for little or no profit.
Drawbacks
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There are drawbacks to lease-to-own arrangements, even if the agreements seem to make financial sense. Some owners simply aren't cut out to be landlords. Being a landlord is hard work. Owners will have to take late-night phone calls from tenants whose heat has gone out, for example. There's also the very real possibility that tenants, after their lease expires, won't purchase sellers' homes. When this happens, owners again face the burden of having to sell.
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References
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