Crucial Parts of a Rent to Own Deal

Hi Folks,
   Thanksgiving week is upon us as quickly as I think I've ever experienced it before. Does anyone else feel the same way?

   "Rent to Own Homes" are an excellent vehicle for both buyers and sellers, however, some folks throw around those 4 words in a haphazard manner with no thought behind it. When that happens, it opens the door to bad things, and some bad folks trying to profit on the backs of innocent people.

   With our 10-year anniversary celebration ongoing, by now, you should be fully convinced that we take the phrase, "Rent to Own Homes", quite seriously, and we cannot stress enough just how important it is to sort out  all of the facts and responsibilities of all parties, just as in any other business contract.

   There are certain things that the Seller/Homeowner must do, as well as certain things that the Prospective Tenant/Buyer must do, but most importantly, these things must be coordinated between both of the parties. Ignoring these things are the sure sign of legal repercussions down the road, for both parties.

   In an aptly-named article, "Questions to consider if looking to rent-to-own", Joanna Jackson, a sales manager/associate broker with Jackson Realty, wrote up a concise breakdown of these specific items.

   Basically, as you might imagine, these run the gammut between Who fixes the toilet bowl, who pays for the handyman, if needed, and plenty of "What If?" scenarios.

   Jackson list the following items the seller will need to consider; Who will tend to the property, pay for routine maintenance, and pay for major repairs? Will you be managing the property, and if not, will you hire a real estate agent (and what are the costs of those two routes)? How much does it cost to set up and manage an escrow account for the portion of rent allotted to the down payment? What if the renters bail on you? Who keeps the money in the escrow account? If the buyers change their minds, what will be required to put the property back on the market for sale?

   Jackson also lists some of the items that need to be thought out by the buyers; How much, if any, of the rent is going to the down payment? What if you change your mind (How locked in are you if you change your mind?), What will it cost you to get out of the deal, if needed?, How long will it take to accumulate enough of a down payment to help you towards qualifying for a mortgage?, Who is responsible for paying the property taxes (and other local taxes) and insurance on the property?

   These are all very open-ended questions with no Right or Wrong answer, however, there are certain local "traditions" or procedures that vary from state to state and sometimes even county to county. I fully concur with Jackson, who states that when "considering a rent-to-own deal, seek legal advice from a real estate attorney". I go one step further and suggest an attorney that is local to the property, and thus, the local laws.

   Although these above-mentioned items can seem a thorn in your side, remember one thing; these are what make a Rent to Own Deal an actual "Rent to Own Deal", vs. a shady open-ended agreement with many gray areas, which can stop you from selling your home, or, can stop you from obtaining your dream home. Nail it down the first time so everyone walks away happy!

   Have you had any good or bad experiences with a Rent to Own deal? We'd love to hear which of these suggestions came into play during the process.

   From your team at HomeRun Homes, we wish you a safe and enjoyable Thanksgiving Holiday!

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Have a Great Weekend, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes - Rent to Own Homes, since 2002
"Located at the Corner of Technology and Real Estate"
Rent to Own Homes and Real Estate Blog for HomeRun Homes: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com


TAGS: #RenttoOwn #Homes #buyer #seller #contract #homeowner #tenant #property #maintenance #repairs #escrow #rent #sale #downpayment #qualify #mortgage #propertytax #realestate #attorney

Buying a Home: Benefits, Mistakes, and Tips

Hello All,
   Glad to have you back with me.

   Quick Question: Are you looking to buy a home? Do you own a Home? Do you own a few homes? Do you sell homes? If you answered "yes" to any of these, this Blog post could be a huge help in meeting your goals.

   We all know the "American Dream" about homeownership, and the pride that comes along with it. As Jonathan Slappey writes in his story, "Top 5 Reasons to Buy a Home in 2012", this dream is "a very feasible aspiration for 2012."

   One of the "reasons" that Slappey lists was Appreciation, and in combination with the low current prices and historically low mortgage rates, he writes that you can "almost ensure your home’s appreciation in the future" (He adds that "many foreclosed homes are available for a fraction of the original cost.").

   Before jumping in, potential homebuyers need to plan, and then plan again, and then again.

   "Property insurance, taxes, homeowners association dues, maintenance, and higher electric and water bills are some of the costs first-time homebuyers tend to overlook.", writes Polyana Da Costa in her story titled, "Common mistakes first-time homebuyers make". Taking one step back, Da Costa writes that "Home buying doesn't begin with home searching. It begins with a mortgage prequalification". Ed Conarchy, a mortgage planner at Cherry Creek Mortgage in Gurnee, Il, was quoted in Da Costa's story, in which he said that, "You get preapproved, and then you find a home". so that you'll "financial decision versus an emotional decision". Sound advice.

   Now, about those expenses Da Costa listed above; If a homebuyer spend their entire savings for the down payment, closing, etc, then what happens? Conarchy says that this is "one of the biggest mistakes first-time homebuyers make". Additionally, in the same story, Da Costa warns that "Any new loans on your credit report can jeopardize the closing", since lenders pull credit reports prior to the closing to "make sure the borrower's financial situation has not changed since the loan was approved".

   Getting back on course, some other reasons Slappey listed as positives for buying a home this year were tax-related. "Property Tax Deductions" are a major benefit, as Slappey writes that "real estate property taxes for a vacation home and first home are fully deductible". Another reason, "Preferential Tax Treatment", which he says that since Capital Assets are given preferential tax treatment, this would benefit you if you own the home over a year and you "receive more profit than the allowable exclusion after the sale of your home" (the profit will be considered a Capital Asset).

   On the topic of Taxes, the average first-time homebuyer may not be aware of the ins and outs, since they might be buy-and-hold for many years, a real estate investor would be more aware of tax incentives. In the story, "Tax incentives and tax deductions for real estate", Iylce Glink and Samuel Tamkin write that "Real estate is one of the few businesses in which you can accumulate wealth, buy and sell properties repeatedly and never pay any federal income taxes if you follow certain rules". They add that by using certain depreciation rules, "you can make money from renting properties and create a scenario where you might make a great amount of income yearly but pay no federal income taxes on that income". This, however, is far outside the scope of this particular Blog post, albeit quite interesting.

   "Equity Building", which Slappey calls a "new trend being used by some homeowners", basically means that homeowners can/do add money to their monthly payment to pay it down faster. The result is a shorter home loan length, which means owning their home faster, along with some additional benefits.

   The final reason Slappey listed as a reason to buy a home this year: Pride. An example he gives is blasting your music as loud as you want! "No matter who you are, homeownership is a purchase, commitment, and journey that’s sure to bring you pride", says Slappey.

   Do you agree?

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Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #buyhome #sellhome #foreclosedhome #lowmortgagerates #homebuyers #downpayment #closing #PropertyTax #CapitalAsset #realestate #incometax #rentproperties

Rent to Own, The Good vs. The Ugly

Hi Folks,

   Welcome back to our first post of AUGUST !
   WOW...you can almost feel the snow that's on it's way in the next few months.

   9 years of living and breathing Rent to Own, and can I share this with you? I have never seen such publicity regarding Rent to Own as I have seen over the past few months ! Most of it is good and promising, but there are always vultures and bad apples out there looking to take advantage of buyers and/or sellers in desperate situations.

   Let us take a look at the "BAD" (and the "Ugly").

   In a recent Press Release on Media-newswire.com, titled, "A Georgia man was sentenced to nearly six years in prison for his role in a mortgage fraud conspiracy", as the story says, a person from Georgia was allegedly involved in a scam involving "dozens of properties and $7.5 million in loans", as per Steven M. Dettelbach, United States Attorney for the Northern District of Ohio.

   The scam went as follows, per the article: the individual, "informed the straw buyers/investors that after he purchased these properties in their names, he would enter into a “rent-to-own” agreement with one of the individuals from the community with poor credit in order to help that individual improve his/her credit score by renting the property for a year.", and additionally, he "represented to the straw buyers/investors that he would collect the rent from these individuals as tenants in the properties, pay the mortgages and taxes for the properties, and maintain the properties for the straw buyers/investors for approximately a year, at the end of which time he would sell the property to the tenant after his/her credit score improved and the property would be transferred out of the straw buyer’s/investor’s name, according to court documents."

   Unfortunately, he "did not assist any individuals with poor credit, nor did he enter into any “rent-to-own” agreements.", but instead, he "conspired with" loan officers, "to prepare and submit fraudulent mortgage loan applications to various mortgage lenders knowing that they contained false information with regard to the straw buyers/investors in order to secure mortgage loans on the 48 properties, according to court documents.". Ultimately, he was sentenced to 69 months in prison.

   Now, that is the only negative story on my radar the past few months, aside from a Foreclosure Scam we discussed in a previous Blog Post ("Foreclosure Scam Alert Based On Phony Deeds")

   For the most part, Rent to Own has been represented in the Media as an opportunity for buyers, sellers, as well as entire Housing Markets and Nations to rebuild and prosper. With that, let us examine these positive stories (the "GOOD").

   Rent to Own has always been an important strategy to pull buyers with less than perfect credit into the market, as well as sellers who are stuck in a home or multiple homes. A recent story in the Milwaukee Journal Sentinel titled, "Condo Living: Income Property", discussed a company in Milwaukee (Milwaukee Apartment Finders) that "offers its clients a rent-to-own option, which allows tenants who make an additional down payment when they sign the lease to apply a percentage of their rent to the purchase price of the condo unit.", which is a Rent to Own agreement. The story adds that at the end of the lease, "which is typically 12 months, tenants can opt to buy the unit or forfeit the down payment to the condo owner."

   Additionally, in a story by Luis Hernandez for the Visalia Times ("47-unit housing project OK'd by Tulare Planning Commission"), the story discusses the approval by the "Tulare Planning Commission" of a design for Aspen Court, "a 47-unit affordable-housing project in east Tulare — the first such development to receive city approval in several years." In the story, Consultant Tim Sciacqua (representing Kaweah Management), is quoted as saying that "Tule Vista, a rent-to-own single family housing project on E Street north of Bardsley Avenue, has 10 units ready to be rented out. The second project, Trails West at Cross Avenue and West Street, is about 10 months away from completion. Framing for the houses is up."

   The good stretches outside of our borders, as well.

   In the United Arab Emirates (UAE), two recent stories discussed Rent to Own in the Oil-rich nation. "The introduction of rent-to-own schemes may boost demand" for projects in Abu Dhabi, Jones Lang LaSalle said in a report released this week, noting that it expected other developers to follow the Sorouh model". This quote comes from the story written for the National.ae, titled, "1000 homes to boost sluggish sales market", which offers hope in boosting the market in that country. In a second story for the UAE, written by Parag Deulgaonkar for Emirates247.com ("Rents in older Abu Dhabi buildings fall 15% in Q2. Second half to see higher handover; prices not to recover before 2012"), the story says that, "The introduction of rent-to-own schemes may boost demand, but only a limited number of developers offering this option.". Once again, a beacon of hope for increasing demand and stoking the market.

   Buying a Home, Selling a Home, Renting a Home, OR Renting-to-Own a Home. These all require careful review and due-diligence before signing on the dotted line. Do not rush your decision, regardless of how dire your situation, as you could find yourself worse-off by ten-fold. Consult your attorney, title company, etc. These are major life decisions...

   Looking for your comments on this topic......starting now...


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Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #renttoown #titlecompany #buyinghome #sellinghome #downpayment #UAE #mortgagefraud

Guidelines For Earnest Money and Down Payments, Part 2 of 2

Hi Folks,

   Welcome back here on this last day of the week.

   In part 1 of this 2-part series, we defined and discussed "Earnest Money", and today, we will do the same thing with "Down Payments".

   A Down Payment, as most of you know, is an amount that is "put down" towards the total purchase price of a home. This amount can vary by state, type of loan program, and the type of deal. We'll look at some real-word examples of this today.

   Joetta Talford, a Realtor with Keller Williams Realty in Fort Mill, South Carolina, suggests that you, "Make sure you figure out how much your closing costs will be and if you either have enough for your closing costs or the down payment.", and that, "If you don't have enough for both (i.e. Other house on the market, ask for help with closing costs), Be honest with your agent and they can really try to get it worked out on your behalf." Adam Cowgill, A Sales Associate/Realtor, says that any down payment today, "should be a minimum of 20%; sellers are aware of the present lending crunch and the likelihood that you will get a higher LTV than 80% is gone like the boom of yesterday."

   Jeff Tufford, a Mortgage Consultant, says that down payment amounts will be, "program driven". Most folks put the least amount down allowed, whether that is $0 or 20% for an investment property."

   Down-payments depend on, "whether the deal is lender-financed, or seller-financed", says Patrick E. Hudson, a Commercial Real Estate Attorney in Texas.

   Hudson says that in a lender-financed deal, "the buyer needs just enough of a down payment to persuade the lender to make the kind of loan the buyer desires. My advice is for a buyer is to determine what kind of loan they want, and will be able to get, before they shop for homes, and let that determine the down payment amount. The seller should not care about the down payment amount, as they get paid the same regardless of the source of funds." In a seller-financed deal, "it is essential to get enough money up front to (a) weed out deadbeats; (b) cover the costs of foreclosure; and (c) cover damages that may be caused by a defaulting buyer. This defensive position ensures that if everything goes wrong, the seller has enough money to get the house back and restore it to a good condition."

   In terms of down payment amounts in regards to home home builders, Talford says, "There are certain national residential builders that ask for 3.5% down or more before they begin the process of construction.", and that, "A custom home builder will ask for 10% down before they build. But everything in real estate is negotiable, especially if you have a home to sell or need to pay more for closing costs."

Have a Great Day, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

Steps to Acquiring a Loan

Hi Everyone,
   It's October...'nuff Said ! Since I am a Halloween baby, it's my birthday month (please don't ask my age!).

   Not Long ago, we were quoted in an article on the new "Currency" site from American Express, titled, "3 Steps to Getting a Loan", and the article could serve as useful to any of our readers that are interested in procuring a loan.

   The author, Christina Couch, summarizes the 3 steps as, "Stimulate Your Score", "Steady Your Finances", and "Readjust Your Debt Ratio".

Under the "Readjust Your Debt Ratio" step, Couch writes:
"...if you still can't get a traditional loan, you're not out of options. There are other financing opportunities to investigate, like renting with the option to buy. 'Deals like that typically last for 12 to 36 months and require tenants to pay a non-refundable option fee instead of a down payment—and usually, that fee is a lot cheaper,' says Robert Eisenstein, president of HomeRun Homes, a real-estate firm in Lake Ronkonkoma, New York.'There are a lot of creative ways to buy, and a lot of very specific mortgage programs out there, if you don't qualify for traditional loan products,' Eisenstein says. 'You just have to do a little homework.'"

   Head on over to the new American Express "Currency" Site to have a look around at some really great articles (as well as the one mentioned above).

   Next Week (Monday 10/4), the Pending Home Sales Index will be released. These are key figures, so let's monitor them together.

Have a Great Weekend, and Happy Rent-to-Owning !

What Can Go Wrong With Rent to Own ?

Hi Folks,
   It's Friday ! Hope your week has been phenomenal.

   As our title suggests, today we will be looking at some issues that may arise when doing a Rent to Own Transaction, as well as a few solutions to help you out.

   A common problem in this economy is the steady decrease in home prices. This represents an overall problem for the market in general, but it has a specific effect on a Rent to Own deal. For example, Aaron Galvin, Managing Broker of Luxury Living Chicago, says that if a tenant has been renting a private condo or a home for the last year with a specific purchase price which was established at the beginning of the lease term, a decrease in property value will impact the decision of the tenant to buy the property. If the tenant was ready to buy the home, he obviously does not want to overpay.

   Galvin proposes the following solution; "Do not establish a purchase price when signing a lease. Instead, a tenant should disclose their desire to ultimately purchase the property at the end of the lease term and negotiate a percentage of rent back toward the final purchase price.", so, in other words, "No dollar amount should be set until the value of a home is determined at purchase time." This would, of course, be in writing, and agreed to by both parties.

   Gary Parkes, a Mortgage Lender with Acopia Home Loans, suggests some additional solutions, including a few proactive ones. Parkes says that using a realtor, and "having them thoroughly research the comparable properties will help minimize the likelihood of that happening.", however, if this advanced planning does not work and the "house appraises for lower than the agreed price you have a few possible solutions that can resolve this issue."

   Parkes says that, "in a majority of cases the seller will ask for a copy of the appraisal to review and will lower the agreed upon sales price to match the appraisal.", however, if the seller is, "unable or unwilling to do that, the next option would be to meet half way or pay the whole difference." He reminds us that you can decide to pay more that the appraised value, but, "the lender will base how much they lend you on the lower of the sales price or appraised value.". Fortunately, he points out that a situation like this typically is resolved and the purchase does occur.

   Another potential issue is due to potential human interactions, or "PHI", as I like to call it. Shuki Haiminis, President of Lofts.com, has presented an example of this type of issue. Haiminis brought a couple to see a loft development, which they loved so much, that instead of just renting it, they want to do a Rent to Own transaction. The developer hesitantly agreed, but the couple assured him that, "there was no way that they would not be buying the unit."

   Ultimately, the process went forward, and the developer, "put his own money and labor into customizing the space for them with their specific requests.", and Haiminis says that, "While he would probably have made some of the changes, in solely a rental deal he definitely would not have put in as much as he did."

   What was the end result? A Negative PHI...the couple split up! So, "not only did they not buy the Loft but they had to terminate the rental lease as well." Haiminis said that the developer, "should have required a small down payment maybe equal to one months rent to show good faith." This is a good point. Builders/Developers - pay attention to that one !

   Some other things that can happen along the way are issues with the down payment funds and with income statements, and Parkes, who experiences things from the buying aspect daily, and has examined each of these for us.

   Down Payment Money: Parkes says that, "Many people do not realize that they will have to explain where any non-payroll deposits came from and many people do not like having to answer these questions for privacy reasons". Lenders often look over the previous 2 months of bank statements, and they will need to know where the money came from. Parkes suggests that you, "have an account with the money sitting there already for 2 months.", so that you do not need to, "source all your deposits", and that, "Even if you are receiving a gift for a down payment, these same factors can be applied to the gift giver."

   Income: Parkes warns that if you are considering buying a home within the next few years, you need to, "be careful in the amount of write-offs you take on your tax returns", since, "Lenders use the tax returns to determine income in our current lending environment-even for those salaried borrowers such as teachers, non-commissioned employees, etc.". Additionally, he says that, "Yes, you will have to pay more in taxes but it will help you qualify for a loan. It is a tough pill to swallow, but by planning ahead you can prepare", since, "A lender will generally look at the previous two year tax returns in determining income."

   Ultimately, there are pros and cons with any type of real estate transaction. The pros of Rent to Own are being able to try a home before buying it, and being able to get into a home you might not normally be able to under your current circumstances. For a seller, being open to Rent to Own gives you an extra tool to help sell your home, and to have a serious tenant who could potentially own the home and will treat it as if it is already their own home.

Have a Great Weekend, and Happy Rent-to-Owning !