Rent-to-own home leases becoming more popular
In South Florida's depressed housing market, some people are taking a wait-and-see approach by renting with an option to buy later.
Leasing is still more common with cars, but the concept is spreading. Sellers are willing because they're struggling to unload their properties, and a rent-to-own contract brings in cash. Prospective buyers also are game because credit is tight, and they can build equity while they take time to qualify for mortgages.
"With the economy, I think we're going to see this all through '09, unfortunately," said Perry Diamond, a Boca Raton real estate agent with Lang Realty who sets up most of his residential listings as leases to own.
In a typical deal, the renter agrees to buy the property for a specific price at a later date. The renter makes a nonrefundable deposit, and the seller puts part of the rent money toward the down payment. Still, there are risks for both sides."In the right circumstances, it can work," said Stuart Kapp, a Boca Raton real estate lawyer for the Proskauer Rose law firm. "But problems can arise over time that no one anticipated that create friction between the buyer and the seller."
Krystal Financial & Real Estate Services in Pembroke Pines screens prospective buyers and pairs them with sellers who don't mind renting first. Poor credit doesn't necessarily disqualify a potential buyer from the firm's lease-to-own program.
Dwainette McKenzie lost her Sunrise townhouse to foreclosure last year. But then she heard about Krystal, which found her a house to rent and will help her get her financial footing so that she can eventually buy the property.
After looking at about 25 houses, McKenzie, 43, settled on a four-bedroom Miramar house. She pays $1,900 a month in rent and has agreed to buy the house this summer for $390,000. At that time, the seller will credit her 3 percent of the sale price, and McKenzie said she'll spend that money on closing costs.
"I couldn't qualify for a mortgage any other way," McKenzie said.
Many buyers in today's housing market are hamstrung by financing, even if their credit is good. For those people, a lease-to-own contract makes sense, agents say, but it's not something they should enter into halfheartedly.
"If the buyer changes his mind, he loses the money," said Richard Wright, Krystal's broker-owner. "You're buying a house. This is not a T-shirt."
But some real estate observers don't consider rent-to-own a viable option, particularly in a market in which prices are steadily dropping.
"If you're a buyer, why would you want to lock yourself in at today's price when it might slide 10 percent more?" said Brian Boles, a real estate agent in Delray Beach.
Bob Bollon of Lighthouse Point didn't let sagging prices deter him from selling his Boynton Beach house through a lease-to-own deal.
The buyer agreed to a $500,000 sale price and put down a $10,000 deposit. After nine months, Bollon and the buyer settled on a $465,000 price because the value had declined.
In a perfect world, Bollon wouldn't have needed to go the lease-to-own route, but he said buyers are in short supply, and sellers must be willing to compromise.
"It could have been a nightmare," said Bollon, 62, who owns a commercial landscape company. "But it worked out really well."
To account for falling home values, contracts should be contingent on the properties appraising for minimum prices, said Kapp, the real estate lawyer.
Sellers could wind up regretting lease-to-own agreements if the tenants damage the properties and fail to buy them. And other issues, such as who pays for maintenance or needed repairs, will have to be settled before the sale can occur.
"Any long-term purchase/sale agreements will have some challenges," Kapp said. "It's the nature of the beast."
Paul Owers - South Florida Sun-Sentinel - January 19, 2009