At Last, The Secrets of Rent-to-Own Homes

At Last The Secrets of Rent-to-Own Homes- 150x150The real estate market has several solutions for both home buyers and home sellers. One solution for those who wish to buy a home, but don’t have the money for such a large purchase yet, is renting-to-own, also known as a lease option. People who choose this option will pay rent for the home that they live in, but are given the possibility of purchasing the home at a later date. The rent that people who choose the lease option will have to pay is higher than a regular rent, but the advantage is that part of the rent will be credited to the buyer if he or she decides to purchase the home.

A rent-to-own agreement allows the buyer to purchase the home that he is currently renting at any time before the agreement expires. The length of time in which the home can be purchased can be a few months or even years. Because the rent is higher than usual, sellers can afford to take their property off the market and rent it. However, if the renter decides to buy the property, he or she will be credited with a portion of the rent. This sum of money can be put toward a down payment and closing fees, or simply used for something else. If the buyer is unable to or decides not to buy the property during the lease option period, the entire amount that was paid as rent over the past months or years will remain with the seller.

Advantages and Disadvantages of Rent-to-Own Homes

The rent-to-own option is advantageous to sellers because it gives them an alternative to lowering the price of a home that they are having problems selling. By making a rent-to-own agreement with a buyer, sellers know exactly how much money they will be making if the buyer decides to go ahead and make the purchase. If home prices go down during the lease option period, the asking price for the seller’s home will remain unchanged, and the buyer might still want to buy the property because he or she has already invested money in it by paying a higher rent. The seller is also at an advantage because the rent money can be used to pay the mortgage, property taxes and insurance. Also, a renter who signs a rent-to-own agreement will most likely take better care of the property, because they are planning on buying it in the near future.

Buyers are advantaged by the rent-to-own option because it allows them to buy a home if they don’t have the money for the down payment, or their income is not sufficient. If a buyer believes that his or her income will increase in the near future, renting-to-own allows them to have a roof over their heads while having the option of buying the home at a later date, when their financial situation improves. Buyers are also protected from a home price increase during the lease option period, because the price of the home will be locked in.

Buyers also have almost all the advantages that regular renters have, like not having to worry about repairs, property taxes, and homeowners insurance. Another advantage of renting-to-own that the buyer has is that, by living in the home for a long period of time, he can find out if there is anything wrong with it. If buyers decide to walk away from the deal, they only lose the extra amount of money that they paid over regular rent, but if they decide to buy the home, they will be credited with a portion of the rent that they paid.

Like everything in the real estate world, renting-to-own also has its disadvantages. Most disadvantages are things that could go wrong with the rent-to-own agreement. Here’s what you should keep in mind and look out for:

  • The seller’s financial situation. Try to find out if the seller is in any financial trouble. Red flags can be spots on his credit report, phone calls from debt collectors, or letters sent to the house. If the seller is in trouble, he can lose the home while you are still renting it. Meaning that you will lose the extra money paid as rent and you will have to find a new place to live.
  • Repairs and maintenance. The rent-to-own agreement between you and the seller should clearly mention which party is responsible in case of damage to the property, and who is responsible with maintaining the property. During the renting period, you should have the same rights as any renter, meaning that the owner should take care of repairs and maintenance.
  • The end of the rent-to-own period. If home prices have increased, the seller might not want to sell anymore. Unless you have the money to hire a lawyer and sue the seller, there is little you can do, so this is one of the risks that you are taking when renting-to-own. Also, if home prices go down and you want to buy the home, you will still have to pay the price that you and the seller agreed upon.

Renting-to-own is a good alternative for home buyers who expect their financial situation to improve in the near future, but not such a good option for those who are unsure of their income in the following months or years. Renting and saving money for the down payment can be a better choice than paying more for rent than having to abandon a home because you don’t have enough money to buy it.

To Buy an Existing Home or a New Home, That is the Question

To Buy an Existing Home or a New Home, That is the Question- 150x150There may come a time in your life when you will want to stop paying for rent or living with your family or friends and become a home owner. One of the most basic dilemmas that most people who are looking into home ownership have is whether to buy an existing home or a new home. Finding the answer to this dilemma is surprisingly difficult because there are many factors that you will have to take into consideration when buying a home. Both choices have plenty of advantages and a few disadvantages, which should be carefully looked into before deciding which way to go.

Advantages to Buying an Existing Home

Buying an existing home may not seem that beneficial for you at first glance, when compared to buying a new home or building your own. But there are some clear pros to buying an existing home and they shouldn’t be overlooked. Here are the most important:

  • Location. Existing homes are most likely built closer to major metropolitan areas, which will make your work commute and shopping significantly less difficult and cheap. Many new homes are built at the edge of the city or town, so your commute will be longer, which means that you will be spending more gas and time on the road every day. Check out the most expensive housing markets as well as the least expensive housing markets to help make your decision.
  • Build quality. Both construction materials and labor were less expensive in the past, which means that even if the home is a few years older, it’s very likely that it was built stronger and with better materials than a home built recently.
  • Appliances. Many existing homes are sold with included appliances, such as stoves, refrigerators, or even television sets. Buying a new home or building means that you may have to buy all or some of these appliances which can end up being quite expensive.
  • Better curb appeal. Most existing homes have mature trees around them and landscaping. You probably won’t get that with a new home, and, depending on which area the new home is built in, you may have to wait years until your home’s surroundings will be complete with mature foliage and finished construction projects.
  • The neighborhood. Most existing homes are located in already established neighborhoods, so it will be easy for you to find out if you are moving into a good or a bad neighborhood. You can also find out what your neighbors are like before buying the home. When buying or building a new home in an unknown area, you can end up having some unwanted developments built right next to your home.

Advantages to Buying a New Home

Buying a newly built home or building your own home also has plenty of advantages and, depending on your situation, might be the better choice. Here are the pros to buying a new home:

  • Location. While this can also be considered a disadvantage, living on the outskirts of a city, where new houses are often built, can also be a blessing for those who want to live away from the noise and agitation of a large city. If you’re looking at rural areas, you can potentially apply for a USDA mortgage loan.
  • Less maintenance. A newly built home will need repairs and maintenance much less than an existing, older home. Many parts of the home may even be covered by a few years of warranty. Serious and expensive repairs to things like the roof or the electrical system will be much cheaper or even free if they are covered by a warranty.
  • More modern. People’s taste in homes changes over time, which means that you will probably like a new home, with bigger rooms and a more modern design. On the other hand, older homes may have certain unique architectural elements that you my like.
  • More energy efficient. Because new homes are made with newer materials, they may be better insulated, making your energy and heating bills much lower. Existing homes usually cost more to heat or cool, but it generally depends on the age of the construction.
  • Amenities. Many new homes may offer amenities that are not usually offered when moving into an existing home. These amenities can include a swimming pool, jogging trails, or playgrounds for your children.

Buying an existing home or buying a new home may seem like an easy decision, but it is actually a very serious and difficult decision. Whatever your budget and requirements are, you should not dismiss either option before taking a closer look at what each has to offer. Additionally, renting a home may be an option to consider. You might be set on buying or building a new home, only to find that it will be much cheaper and convenient to buy an existing home that will satisfy all your needs.  Alternatively, you may also find that buying a new home over an existing home can be more beneficial for your situation.

Renting vs. Owning: Which is Best for You?

Renting vs. Owning- Which is Best for You-150x150Right now when the housing market is slowly recovering and interest rates are still near record lows, it might be the best time to consider becoming a home owner. Of course, depending on your financial situation, home ownership might not be the best choice for you. People have always debated whether it’s better to own a home or rent one, but the truth is that it mostly depends on each person or family’s budget, location, and future plans.

Owning a home can be as affordable as renting or even more affordable in some parts of the United States. The difference in price can be easily figured out by simply comparing mortgage prices to rental prices in your area. But even if renting seems cheaper, you will need to take into consideration all the advantages that home ownership has to offer.

Factors that Should Influence Your Decision

First of all, probably the most important factor that will influence your decision on whether to rent or buy a home is location. Prices fluctuate significantly depending on what area the home is located in. You might want to be closer to your job, which may make you look at homes in more expensive parts of the city or town. Prices for homes could be well out of your price range, so renting will be your only viable choice. Alternatively, you could move to a less expensive area, which will make your daily commute longer, but will give you the advantage of being able to afford buying a home.

Another factor that will have an impact on your decision is timing. You have witnessed the rise and fall of the real estate market during the past few years, and you have probably realized that buying a home has a lot to do with timing. Millions of people have lost their homes during the economic collapse because they became home owners before the housing market bubble burst. Interest rates also fluctuate, so buying when interest rates are low is a wise choice.

Last, but not least, one factor that should influence your decision is your financial situation. When analyzing your financial situation, you need to have a look at both your savings as well as your income and future earnings. This way you will determine if you are in a good position to become a homeowner, or if you should rent until you can make the necessary changes that will allow you to buy a home.

Pros of Owning a Home

Becoming a home owner is something that most people aspire to. Statistics show that home ownership in the United States is at nearly 70 percent, which means that it is a dream that can come true quite easily. Home ownership comes with great advantages that you won’t get if you rent. Here are some of them:

  • Equity. When paying your mortgage loan, you are increasing your degree of ownership with every monthly payment. By paying rent, you are pretty much losing that money, as opposed to ownership where you can actually borrow against your equity to finance other purchases or refinance your home.
  • Tax deductions. Your mortgage loan interest and property taxes are tax deductible, which will save you a significant amount of money each year. If you work from home, your home office and part of your utilities may be eligible for further tax deductions.
  • Make changes to your home. When you own a home, you can decorate it any way you want. You can paint the walls any color you choose, hang pictures on the walls, and even add rooms or other structures to it. When renting, you can only make small modifications, and you will most likely need the building owner’s permission.
  • Choose how to deal with repairs. Whether you can repair and maintain your home on your own, or hire a contractor, you can do as you wish, without being at the mercy of your landlord, as is the case with renting.

Pros of Renting a Home

Depending on many factors, renting could be a more viable option than owning a home. Here are some of the more important benefits of renting:

  • Low upfront cost. When renting, you are required to pay the first and last month’s rent, and probably a security deposit upfront. There are no large down payments, home inspection fees, and closing costs, like when buying a home. The difference between the upfront costs of renting and buying can be as high as several tens of thousands of dollars.
  • Easier to relocate. If you need to relocate for reasons such as a job change or divorce, you can easily pack up and move. Also, if your salary changes, you can easily move to a different area.
  • Increase your credit score. A low credit score can get in the way of becoming a home owner, so renting for a while not only allows you to have a roof over your head, but it will also help increase your credit score and get back on the path to home ownership.
  • No repairs and maintenance. If something in your rented home, like appliances or fixtures, stops working or breaks, you won’t have to replace it and pay for it. The landlord will take care of repairing and replacing things.

Both owning and renting have their advantages, but choosing one or the other will mostly depend on your budget and plans. Prices and interest rates fluctuate often and sometimes significantly, so buying a home at the opportune time will save you a lot of money and future headaches. Also, if you are not comfortable with the current housing market situation or your financial situation, then renting will most likely be the better choice.

How to Invest in Real Estate without Much Money

How to Invest in Real Estate without Much Money- 150x150Investing in real estate costs money, but with a little resourcefulness and knowledge, you can buy real estate with little or even no money of your own. Having some quick cash to put down as a down payment is the ideal situation, but there are other options for real estate investors who don’t have much money. You have the traditional option of borrowing money, but we also tell you about some lesser known options that might work best for you. Here are your options when trying to invest without much money:

Options for Investing

1. Traditional Borrowing. Should you find yourself in the position of not having enough money to make a real estate investment, borrowing from a lender is always an option- just make sure that you will be able to pay the money back. Even though lenders have tightened their lending requirements, banks and credit unions are still able to lend you the money that you need for your investment if your credit score is good enough to qualify. You will most likely be asked to make a 10 percent or larger down payment, but there are still lenders that require less. Borrowing money from lenders is the safest and most well-known way of financing a real estate investment.

2. Seller Second. An often used form of financing, “seller second” can help you invest in a property by allowing the seller to provide a second mortgage. Normally, this second mortgage will be enough to cover most or even all of the down payment required. This type of financing allows you to buy an investment property without using much, if any, of your money, and the seller will get a large part of his equity. It is important to be sure that the mortgage loan that you qualify for allows a second mortgage to be added to it.

3. Seller Carry Back. This is a type of “creative financing” and it allows you to invest in a property with little or no money at all. Seller Carry Back is a form of financing in which the seller sells the property to the investor, but receives the money as monthly payments, for as long as 5 years after the sale. The seller must truly own their home, and not owe any money on mortgage loans.

4. Subject-To. This is another type of financing that can help the real estate investor if they don’t have enough funds. The name “subject-to” came from the phrase “subject to existing financing” which means that you are able to buy the home, but with the condition of the existing financing on the home will remain in the owner’s name, while the buyer will make the monthly mortgage payments. This type of financing gives you the advantage of not having to make a down payment because you will be able to refinance in six months and put the new loan in your name. Subject-to financing is only short-term because the seller is not going to be comfortable leaving the mortgage loan in his or her name for a long time.

5. Lease Option. Another popular way of investing in real estate with little money is by doing a lease option, which allows you to rent a home with the possibility of buying it down the road, before the lease term expires. During the period in which you are renting, which is typically two or three years, you will have plenty of time to get financing in order to purchase the home. The home owner will be unable to legally sell the property during the option period.

When investing in real estate without much money, it helps to be creative and resourceful. You shouldn’t let your lack of funds be an excuse to not invest in real estate. The solutions presented in this article show you that you can invest into this industry without having large amounts of money and liquid assets, but you have to make sure that you fully understand that these solutions might not always be a perfect fit for your situation.

Learn About Lease Purchase Investing Now, or Hate Yourself Later

Learn About Lease Purchase Now- 150x150The lease purchase is an alternative way to buy a home, and is especially helpful if the buyer is unable to finance a home immediately, but would like to have the option of buying the home in the future. As an investor, you are not facing more risk by investing in lease purchasing than you would by investing in traditional real estate, and you will most likely be able to close more deals than other real estate investors.

Lease Purchase and How it Works

Buying a home through lease purchase is a home rental lease that gives you the option of purchasing the property at a future date, during the term of the lease. You are required to pay a deposit upfront, and sign a rental lease contract for 1 to 3 years. During this period of time you will have the option of buying the home, which cannot be sold by the owner to another party.

During the rental period, should you decide to buy the home, the initial deposit and part of the amount that you paid as rent will count towards the down payment. If you decide not to buy the home, the initial deposit and the rent that you paid over the years will be kept by the owner.

Lease purchasing can be beneficial to all of the parties involved. It may not be a good choice for everyone, but here is how a lease purchase can benefit the seller, the buyer, and the investor:

  • The seller has a few distinct advantages by giving buyers the option of lease purchasing. The home will be listed for sale and for rent, which will attract more potential buyers. You will most likely receive your asking price for your home because of the delayed sale and more variables that can be negotiated. Knowing that they might buy your property in the near future, your tenant will take better care of your home, and may even make improvements. Last, but not least, the deposit that the buyer will make can help you avoid foreclosure, catch up on your payments, and increase your credit score.
  • Buyers who use lease purchasing have the advantage of not throwing money away by paying rent like in a traditional renting situation. Part of the money that goes towards paying the monthly rent will be used as down payment if you decide to purchase the home. Also, lease purchasing is a great option for home buyers with less than perfect credit, but has significant funds available.
  • Investors are able to control a home in order to generate profit from renting it out to a 3rd party. As an investor, you won’t need a large amount of money to make a lease purchase, as opposed to traditional real estate investing.

Lease Purchase Investing

A lease purchase investor has a few options when investing in a home, such as living in the house or apartment, renting it out for a positive cash flow, or reselling it immediately. In a slow housing market and economy, when a lot of sellers have to sell their homes before going into foreclosure, a lease purchase investor can easily make a profit.

Once a contract is signed, the investor is required to pay a deposit that will later be added to the down payment, if they decide to buy the home. The rent is set, and the investor is given the option of purchasing the home before the lease contract expires. The home’s selling price is set and it will not change for the duration of the contract.

In order to make a profit, the real estate investor can rent the home to another party for more, or flip it for a quick profit. Normally, lease purchasing is advantageous for both the seller and the investor. While the buyer makes a profit, the home owner will manage to pay their mortgage with the rent money that they receive from the investor, or even sell their home for a good price.

Challenges That an Investor May Face

Sometimes the deal doesn’t work out as expected, or the housing market takes a turn for the worse, in which case the investment won’t be profitable anymore. The good news is that, by using lease purchasing instead of a traditional real estate investment, the necessary capital won’t be that large, so you won’t be losing tens of thousands of dollars.

Depending on the state of the housing market, a lease purchase can be a profitable investment.  Lease purchase investing can be profitable for investors and play an important role for tenants in the journey to becoming a home owner, but, like any real estate investment, it features plenty of risk, and should not be done without having proper knowledge of the process.