The credit markets are a mess, banks are failing, lending institutions are further tightening lending requirements and it is becoming quite difficult to get loans for investments. Sounds bad doesn’t it? Don’t let this get you down; even when the credit market is good investors should be looking for creative and alternate ways of funding investments. Even if you can get a bank loan for an investment doesn’t mean that is the best route to take.
One such alternate and creative way of buying a home is on a rent-to-own strategy which is basically the same thing as a lease option strategy. It is a low risk approach to buying real estate with many benefits to both the buyer and seller. In addition to the buyer advantages listed in the note below, the buyer is not obligated to purchase the property. Many investors are concerned home values will continue to decrease but if the value of the home decreases below what your option price is you can simply walk away. If you would have purchased the property outright and the value decreases you are stuck with the asset because you own it. That is not the case with a rent-to-own.
Rent-to-Own Gaining Favor Once Again
Rent-to-own options are becoming popular again after falling out of favor during the last couple of decades when mortgages were easy to get.
The advantages of rent-to-own to buyers include a way around poor credit, an opportunity to rebuild credit worthiness and a way to try out homeownership without making a costly commitment.
For sellers, it offers cash flow from properties that might otherwise just be sitting there.
In some parts of the country, like Florida, rent-to-own arrangements are fairly commonplace, but in other parts of the country developers are only beginning to experiment with this form of purchase.
In the Boston area, Economic Development Financing Corp. (EDFC) and Trinity Financial are two affordable-home developers that have introduced experimental rent-to-own programs. Eric Gedstad, spokesman for MassHousing, a state agency that finances housing construction, says his agency is supportive.
“As the lender, we are gratified that the developer has cash coming in. It makes sense for potential homeowners. The more time that goes by the better the opportunity for someone to repair his credit.”
Source: Boston Globe, Robert Preer (08/31/2008)
posted by Carter Brown
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