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Interested In Owning Your Own Home?

Lease To Own

Every day I hear how someone is interested in owning their own home. They want to own but they never begin to real go in search of the right information they need. So here are some terms and information for those of you who are looking for the correct information on owning your first home.

What Is The RTO Program?

RTO, also known as rent-to-own, is a lease in exchange for weekly or monthly payments, with option to purchase the property within a set amount of time. This means that the owner has promised to sell the property to tenant for a pre-determined price in certain time frame. The buyer must buy before the lease expires or they forfeit the property and property remains in the sellers possession.

Example: Say your home is $200k. Monthly rent will be the same as buying it. Option fee of $9k must be paid upfront before moving into property. If you lack credit for mortgage.

You can calculate your interest monthly. If you make payments towards purchase price while renting, your interest will decrease each month. Buyer’s can’t deduct mortgage interest on payments on RTO.

The option to purchase is generally following one to three years of payments being made to the owner but can be up to twenty or more years. The option fee is 1-5% of purchase price. All or part of the option fee is set aside for down payment. As a buyer, you must find out what goes to your down payment. Otherwise, in the end of your lease agreement, you may find you do not have adequate money to purchase the property even with a loan.

Leases generally tend to fall under two types of categories: operating and capital leases. If the lease terms meet certain criteria then it is known as a capital, including :

  • the value of the lease payments makes up most of the fair market value of the asset
  • life of the lease makes up most of the effective useful life of the asset
  • there is a bargain purchase option, where the asset either automatically transfers to the lessee at the end of the lease term or can be bought for an amount that is less than what the asset would be worth

Capital leases require you to record the leased asset as a fixed asset on your financial statements and also record the lease obligation as a liability. The value of the asset is amortized and the lease obligation decreases through payments made over time. For tax purposes the company will also treat the lease in a similar fashion, with the asset being recognized and a depreciation expense recognized over its life. Some companies prefer to use capital leases as the accelerated depreciation allows them to expense the assets (for tax purposes) more quickly up front instead of evenly over the life of the lease. There are also interest expense components of the lease payments they will be able to separately expense.

Things To Know Before Signing Contract:

  • Determine the actual sales price of the property
  • Complete home inspection and document any repairs
  • Document any liens affecting purchase
  • Spell out exit clause
  • Ensure payments are handled properly and to who they should go too
  • Find out who is responsible for repairs on property
  • Consult a professional so there is no misunderstanding the contract

Remember that in some industries assets become outdated within 1 or 2 years, and a lease could leave you holding outdated assets for 5 or 10 year terms. Ultimately the decision to lease or rent depends on your needs and your industry.

Finding Listed and Unlisted Rent To Own Homes

 Listings that already include a rent to own option in the seller’s property description are tagged as rent to own or ‘owner financing available’ in search results. Sellers of these listings have already considered their unique situation, have embraced the concept, and are actively pursuing this type of sales approach. The types of homes already listed this way can include single family residences, condominiums, townhouses, mobile and manufactured homes.
There are several ways to find motivated sellers, including searching with:

  • For Sale By Owner, or FSBO, listings
  • Home for Rent ads
  • Home builders in distress
  • Buyer advertised rent to own interest
  • Real estate agents

These approaches are about finding motivated sellers, and ultimately reviewing a broader selection of rent to own properties, involves some effort to reach out and engage the seller in a conversation about the rent to buy solution. Fortunately, the approach to take with each motivated seller is basically the same. The most effective way to approach these sellers involves:

  • The buyer showing a nice level of interest in the property for sale or rent
  • Exploring the owner’s willingness to discuss or consider a rent to own purchase
  • A brief explanation of how the rent with option to buy would work
  • Taking next-steps

Published by Sarah

Hello! I'm a self-employed entrepreneur. I enjoy affiliate marketing and photography in my spare time. I am currently in college for communications in social media and working towards my undergraduate degree in graphic design.

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