The Fed Pushes Rent To Own For REO Foreclosures

Hi Everyone,
   I hope you had a great President's Day, especially if you were fortunate enough to have the day off.

   In some previous posts here over the past few months, we have discussed the connection that is music to the ears of Real Estate Investors, which is using Rent to Own for the immense amount of homes that are on the balance sheets of the banks, which are called REOs (basically, Real Estate Owned by the banks). Initially, we discussed this in "Feds Finally Keen on Rent to Own Housing", and then in the post titled, "From A Sad Foreclosure To A Happy Home". This is such a promising topic for everyone, not just Real Estate Investors, that it's important to revisit it here today, with some details and info from Joe Mont in his story titled, "Need a Foreclosure Cure? Try Rent-To-Own", and which appeared on TheStreet website.

   First, some info for those unaware of Rent to Own

   In a Rent to Own Deal, a Seller rents out their home to a Potential Buyer (a Tenant-Buyer), with a set price at which they will sell the home for during or at the end of a specified period of time. There is also an Option Fee, or an option-to-buy fee, which can run 3-5% of the value of the home.

   In the article by Mont, Brett Furniss, president and owner of BDF Realty, a Charlotte, N.C.-based firm that specializes in rent-to-own properties, says that there has been steady interest in these arrangements for the past few years, and says that "sellers realize that they can't sell their house for market value, so they are willing to entertain rent-to-own tenants, whereas in the past they just wanted to get the property sold"

   There are benefits for both sides on these deals.

   For the buyer, they have a vested interest in a property that they would like to ultimately purchase, and the time period of the agreement allows them to check out the area, the schools, and to build up their credit and/or their down-payment before making the purchase.

   For the seller, the mortgage is getting paid, and thus, the bleeding stops. They also have people in the home that they hope will take care of it as if it were their own, as well as taking care of the utilities, taxes, and as Furniss adds, "the risk of vandalism".

   "Fed Chairman Ben Bernanke shared his views on ways to escape the nation's foreclosure crisis", writes Mont. "Among the ideas in that speech" to the National Association of Homebuilders, was the topic of "rent-to-own properties". Additionally, says the Fed, Rent-to-own provisions could help renters and owners. "Bernanke supports the idea that a share of these creditor-owned properties be offered as "rent-to-own" properties rather than linger on the open market", adds Mont.

   Will the banks take this advice from Bernanke?

   We will see, however, as Mont writes, "the concept of rent-to-own and lease-to-own housing may be gaining traction among individual buyers and sellers". However, it is important to also look at the risks and the precautions.

   One risk that is important to understand is that of a financial nature, For example, if the buyer was unable to purchase the home by the end of the lease, or, if the price of the home is higher than the agreed upon purchase price (i.e, the seller could have sold it for more). Another such risk is the option money, and how it is credited towards a purchase or if any or all of it is refundable if they don't, says Mont.

   Some more good tips revolve around potential scams. A recently growing scam involves sellers who "pocketed their money even though the house was well on its way to foreclosure", writes Mont, so it is imperative to confirm ownership of the home. As always, involve your attorney and have them review all terms of the agreement. To learn more about Rent to Own, please see the E-book, "Secrets of Rent to Own", by clicking this link.

   So, after that mouthful, do you think the Fed will continue to push the Rent to Own path? If not, what would the reason(s) be?

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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: #REO #foreclosure #RealEstateInvestor #bank #housing #optiontobuy #properties #tenant #mortgage #leasetoown

Use A Mortgage, Rent It, Or Use Other Options

Hi Folks,
   Thanks for joining me here. I am so glad to write for you! OK, I promise not to corny.

   Over and over we hear that it is tough to get a mortgage. If you can't get a mortgage, what are some other options. What if you want a home, but don't want a mortgage?

   "It’s getting more and more difficult to qualify for a traditional mortgage", writes CA Hagy in an article titled, "Three Alternatives to a Traditional Mortgage". What are some reasons why you might be declined? Hagy names a few possible reasons, i.e. a foreclosure in your past, inability to prove a "decent cash flow", and self employment resulting in "irregular income?".

   If you fall into one of the categories mentioned above, you're not alone. Hady points out a few mortgage alternatives that might help you meet your goal(s).

   One option is to go the route of "Seller Financing", in which the "current homeowner offers to sell you the house", and you make payments to them but "they continue to hold the note until you have paid off the home". Hagy says that for a homeowner that cannot find buyers due to the tight lending situation. Seller Financing may be a "feasible option". The seller basically becomes the lender, and an agreement is drawn up with the full details of the transaction.

   "Borrowing from a Self-Directed IRA", writes Nagy, is "typically designed for investors who want to buy a home but don’t have the upfront cash to make it happen". As defined in the article by Nagy, "A self-directed IRA is somewhat like a Roth IRA or a traditional IRA", however, it's more flexible, For example, the IRA can invest in real estate, etc, but the "main catch", as Nagy calls it, that the IRS "does not allow you to use your own account or the account of a relative or business partner", thus, you "cannot use your own self-directed IRA to purchase a home. But you can use the money from another person’s self-directed IRA if they are not related to you". Confused? Nagy says that there are many investors "who will allow buyers to use money from their self-directed IRAs as an investment deal", and the investor would "own an interest in the property", or, the investor can simply "loan the money like a regular mortgage".

   The other option, "Leasing or Rent to Own", is something you might be quite familiar with, especially if you are a frequent visitor on our website. In a nutshell, the buyer can rent a home before actually purchasing it. The rent to own arrangement, which is also referred to as lease to buy, lease to own or a lease option, is one in which the buyer has an option to buy the home at a specified price within a specified period of time. This option would also benefit a seller unable to find qualified buyers, and would certainly benefit buyers who need time to save for a down payment and to "improve their credit score", says Hagy.

   Let's stay on the topic of Renting and Owning for a moment.

   "Sometimes it is better to rent than to own", writes Leah Ingram, in her article, "Rent or Own a Home?", who admits that "in today's real estate market it's not surprising if people are a bit gun shy about buying or owning a home." and she provides 3 tips to help you decide on renting vs buying.

   Ask your self; Do you have documented income, a good credit history, and a steady income? These are some important items to have in order to buy a home, in the first of three tips, courtesy of Jessica Edwards of Coldwell Banker Real Estate, within the article from Ingram. Edwards adds that if your income is unreliable, "getting tied down to a mortgage may not make the most sense financially".

   The next tip is to make a "timeline" of how long you will stay in the home; if it's just for a couple of years, you are "less likely to see a significant financial return on your investment", says Edwards, and says that if you stay under 2 years and sell it, "you may find yourself having to pay capital gains taxes".

   "Crunch the numbers", says Edwards, in her third tip. Add up the mortgage payments real estate taxes, insurance payments, maintenance costs, etc. and compare these costs of ownership vs. the cost of renting (monthly rent and average utilities).

   Ingram says that "buying doesn't always make sense and neither does renting", and suggests speaking with a "real estate expert, your tax person, and a financial professional" before deciding to rent versus buy a home.

What are your thoughts? We'd love to hear.

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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: #traditionalmortgage #foreclosure #SellerFinancing #homeowner #SelfDirectedIRA #IRS #Tax #RealEstate #RenttoOwn #leasetobuy #leasetoown #leaseoption #capitalgains