Oppo advice: Home owner edition

"itschrome" (itschrome) 06/02/2016 at 08:51 • Filed to: None

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Hey guys! Ya’ll are such a mixed bag of awesome people so let me throw this out your way and see what you guys have to say.

My land lord approached me yesterday that he is going to retire in the next year and a half. As part of his retirement he wants to sell the house, which make sense. The house is currently in good shape, we absolutely love it it every thing we need a slightly more. it’s current market value is about 85K up from 74k when we moved in. He offered it to us for 79k and will do a rent to own till we occur 15% of the value for down payment, security deposit included. So we already have 2k into this.

so the long and short for you guys is: Has any one rented to own? how did that work out for you? is this a bad idea? basically what are your thoughts?

Cts racecar for your time

OPPOsaurus WRX > itschrome 06/02/2016 at 09:00

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you should talk to a lawyer cuz you are going to need one anyway but to me it sounds like an awesome idea and you have a good landlord.

TheNeonDriver - Now with More BMW! > itschrome 06/02/2016 at 09:00

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I have never done a rent to own, or lease to own, but I can imagine that getting something in writing will be very important if/when you decide to do this. Probably look up a realtor, or a property lawyer, and see if there is a typical process for this.

Supreme Chancellor and Glorious Leader SaveTheIntegras > itschrome 06/02/2016 at 09:01

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That sounds like a really solid deal honestly.

itschrome > TheNeonDriver - Now with More BMW! 06/02/2016 at 09:04

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We will be talking to a lawyer but we both agree no need to bring in a blood sucking realtor into any of this. we need, like you pointed out, a legal agreement expressing the agreed upon purchase price at the start of the rent to own period to lock in that as the purchase price down the road as well as documents showing how the land lord intents to keep and track the monthly payments over rent that will be going towards the 15% down payment. but yeah still lots of leg work to bed one on figuring this all out.

itschrome > OPPOsaurus WRX 06/02/2016 at 09:05

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yeah that’s high on my list of things to do prior to signing anything. and he’s beyond awesome dude, he’s literally the nicest guy I have ever meet let alone rented from.

nerd_racing > itschrome 06/02/2016 at 09:05

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This is something I wanted to do when I was looking for a house, but I ended up buying outright with a traditional mortgage. Definitely get an attorney that does real estate transactions involved and make sure you work out who is paying the taxes and what not. Also make sure you document anything that is not up to your standards that might need fixing. As soon as you do a rent to own you may have to be the one who is fixing things. Ask him what the taxes run, I’m sure it isn’t as bad as NY is here, but they could be a large expense that happens every year even after you pay the place off.

itschrome > Supreme Chancellor and Glorious Leader SaveTheIntegras 06/02/2016 at 09:06

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yeah I agree. It’s like almost too good! But i know the house inside and out so he’s not really trying to get one over on us or anything. He’s just such an amazing person!

Nibby > itschrome 06/02/2016 at 09:07

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Marry the landlord.

itschrome > nerd_racing 06/02/2016 at 09:09

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It’s in NY! eek. haha but property taxes were about 5 grand last year, which is crazy for how small the house is and the plot it sits on. But that’s just New York. haha We need to iron out details but from we talked about last night nothing would change as far responsibilities till we took over owner ship fully.

nerd_racing > itschrome 06/02/2016 at 09:11

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I’m in western NY so it’s not quite so bad. I’m sitting on about $2k for property and school taxes combined. 1108 sq. ft and .47 acres.

itschrome > Nibby 06/02/2016 at 09:14

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man if he wasn’t and I was engaged... hahaha

itschrome > nerd_racing 06/02/2016 at 09:15

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ditto. But i’m also with in a mile of lake ontario. I’m up in the ROC so that’s really the big part of the taxes.

Tom McParland > itschrome 06/02/2016 at 09:15

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Sounds like a good deal...it boggles me coming from NJ that you can get a house for only 79k. How big is it?

Party-vi > itschrome 06/02/2016 at 09:21

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Rent to own is bullshit. Avoid that at all costs. There is not consumer protection legislation for rent-to-own transactions, and most states (47 of them) see rent-to-own transactions as leases . You will still need to apply for a home mortgage loan if you are pursuing a rent-to-own transaction. Have either of you purchased a home yet? If not, why not get an FHA loan and get into the house for 3.5% down? That’s better than waiting for 15%, and while you’re paying rent/rent credit to the current owner you’re not getting any tax break on what you could be paying in mortgage interest. It cost my wife and I (before we were married) about 10% cash of the purchase price of the home to get a loan and purchase the house, including rolling the closing costs into the loan. For a house worth 85K, that would mean you need $8,500 or so in cash to purchase the house, inspect it, pay for paperwork processing, buy-out the PMI, etc.

Did the current owner tell you what portion of your rent each month is going toward your down payment on the house? Did they tell you that even if you manage to save up 15% of the value of the house, you will need an additional 5% for a traditional 20% home mortgage loan? Did they tell you that in a typical rent-to-own situation, you live there and pay your rent and at the end of your rental period, if you decide not to buy the house the owner gets to keep your accumulated down payment? It’s pretty much like leasing a car, except no car ever leased has the value go up after the lease period is over, but a house does. What happens if the house value goes up to $100K after you’ve saved up $12,000? Does that mean you’re on the hook for the $3K difference in cash? Talk to a Realtor or real estate broker an ask if this is a good option for you, and definitely have a lawyer review any written rent-to-own agreement.

Something else too - what the owner says the value is and what you say the value is does not matter. The bank only cares what an appraisal says the house is worth. If the bank appraises the house at $74K and you’re asking for a loan with a sale price of $79K, the bank will kindly open their door and shuffle you out of their offices (granted with 15% down the loan would only be for $67K but still).

Nothing > itschrome 06/02/2016 at 09:22

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What % of the monthly rent is going towards that 15% down? Would it make more sense to purchase now? I did one rent to own, and we ended up not purchasing the property at lease end.

itschrome > Tom McParland 06/02/2016 at 09:22

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It’s not a shoe box, but it could be maybe for shaq. It’s a 5,227 sqft lot with a 848 sqft Cape. the basement and attic are both finished and has a 300 sqft garage.

FoilyDoily > itschrome 06/02/2016 at 09:23

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Consult a lawyer to draw everything up legally. Otherwise - congratulations!

Tom McParland > itschrome 06/02/2016 at 09:29

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Still not bad for the price and if it works for you great! Just keep in mind that if you plan on little ones later on down the road, you may out grow it.

itschrome > Nothing 06/02/2016 at 09:37

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we will be paying a premium over rent. So rent + like 300/350 for 3 years. I wish I could purchase right now but my credit isn’t great and our cash reserves are low. my credit is on the rise but it would be nice to have this arrangement vs trying to save out right.

itschrome > Tom McParland 06/02/2016 at 09:38

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well that’s part of the plan. It’s a great price and a great starter home. I know we could turn it back into rental no issue and then we have equity plus cash flow for when we move on to something else.

cbell04 > itschrome 06/02/2016 at 09:40

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1st home I bought was in Rochester as well. (Penfield) what area are you in. Not to stalk but I know the area really well (lived in Rochester 15 years) This person sound very fair and honestly seems like he’s giving you a decent deal that said you need to consult a lawyer for the trest rent to own details. Your taxes should go down as a single owner in ny. Buyer’s who then rent pay more. Look into “star” discount for taxes. It applies to the young and old. For reference heres my 1st home. http://www.zillow.com/homedetails/29… You’ll see in 09 the elderly person we bought it from paid $900 then it jumped up to 6k for us. Then we found out about star and it dropped to 4k..

OPPOsaurus WRX > itschrome 06/02/2016 at 09:41

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depending on where the garage is located, it could be easy to build over the garage and connect it to the house with a mudroom

itschrome > OPPOsaurus WRX 06/02/2016 at 09:44

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unfortunately the garage is 15 feet past the end of the house. it wouldn’t be worth connecting. it’s also sadly offset in a way that makes it impossible to pull a car into. but it’s fairly big like a car and a 1/4 in size.

cbell04 > itschrome 06/02/2016 at 09:46

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Ps what party said about fha is true. That’s how we 1st purchased the house I showed you. We later refinanced to a traditional loan.

nerd_racing > itschrome 06/02/2016 at 09:47

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oh cool, sounds like a good area. I’m about 45 mins south of downtown buffalo, fairly close to the reservation in Irving. I specifically bought the place because of the low taxes.

smobgirl > itschrome 06/02/2016 at 09:50

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I don’t have any advice regarding the whole rent to own aspect of it, but I would still have a trusted home inspector look the place over before you guys decide on paperwork. You don’t want to inherit any huge problems that he’s trying to escape by going this route.

Nothing > itschrome 06/02/2016 at 09:51

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Cool, understood. Just to throw it out there, I believe FHA mortgages require a 3.5% down, and credit score requirements are lower as well. I believe your mid score has to be above 580. Something to keep in mind in case your able to swing that sooner!

Regardless, it sounds like you have a great landlord willing to work with you. Good luck! I’m originally from a few hours north of you. I miss the plentiful water in NY.

itschrome > cbell04 06/02/2016 at 09:51

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Awesome, good to know we’ll look into star for sure. The house isn’t far from there actually, just down browncroft and up n. winton near empire. it’s technically East Irondequoit. Nice neighborhood, we love it and it’s at the sweet spot of elderly, kids just moving out and new couples with no kids so it’s nice and quiet, for now!

itschrome > smobgirl 06/02/2016 at 09:55

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My friend is a home inspector, had him do a once over a few months back for giggles when we were thinking of asking to buy after we get married. he didn’t find anything of concern but we might have him come back and do a more hardcore one for sure.

smobgirl > itschrome 06/02/2016 at 10:03

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Awesome! One thing to look at for the paperwork will be who is responsible (financially) for anything major that might come up in the first couple years prior to that 15%. Say your water line bursts, or you need a new roof or a furnace or something. As the landlord, is he still 100% responsible?

(As someone who has had all three of those, plus a structural issue with an addition, within the space of 5 years...it’s hard to save up that kind of cash when you’re paying rent plus a few hundred extra)

Ash78, voting early and often > itschrome 06/02/2016 at 10:04

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I’m a landlord and I hate the rent-to-own idea because you’re fixing in a price well ahead of the actual sale. In most cases, either party can back out too easily. I have personally offered to sell the house to my tenants for well UNDER market value (to save the hassles of additional repairs, their move-out, etc), which is basically giving them most of their own down payment in the form of my equity, say 5% - 10% in cash to them. I would ask him if that’s an option because then the deal could be done much more quickly, which sounds like a win-win to me.

cbell04 > itschrome 06/02/2016 at 10:06

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Netsins icecream, guida’s pizza pontillos ! I lived on Spencer right there at the roc boarder for a couple years and previous to that near the church where empire turns to clifford. Love that area. It was my prekids stomping ground. Kept a boat in Irondequoit bay all summer at sutters. Had a blast all those years.

cbell04 > itschrome 06/02/2016 at 10:09

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I know that closed but favorite diner was Jim’s by the old tops on winton. You ever indulge? My mouth is watering thinking about breakfast at James brown’s place. I could go on. I was a huge supporter of that winton area.

190octane > itschrome 06/02/2016 at 10:14

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Like everyone else said I would have a lawyer draw up any contracts or review any contracts.

I would love the payment on an $85k loan versus what I pay for a 1250 sq ft house here in California.

Snuze: Needs another Swede > itschrome 06/02/2016 at 10:25

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Not to knock on your friend, but what is his experience, does he have a background in the construction industry? I say this because in a lot of states it’s very easy to become a licensed home inspector and requires basically zero working construction knowledge.

I used to work construction with my dad, he’s been in the trade for 40 some years now. We’ve had service calls in the past to fix home inspection issues that have turned into a whole lot more work. We had one where the home inspectors report had BS like a sticky door knob, wobbly towel bar in the guest bathroom, and oh, a loose receptacle. We went to fix the receptacle and long story short found several major, dangerous issues with the wiring in the house. Also we had to get in the attic and found a broken truss! And the licensed home inspector missed all this stuff. But thank god he found that wobbly towel bar.

Sorry if I’m a bit jaded, but I’ve seen too many shitty home inspections and hate to see people get ripped off. Again, not trying to knock your friend, maybe he is really good, I hope he is. I just want you to be wary. One thing I can suggest is consider calling a couple tradesmen (electrician, plumber, HVAC tech) and have them look over their respective systems. My wife and I are starting the home buying process and I know that’s something we are definitely going to do (fortunately I already have a master carpenter, electrician, and HVAC tech in my back pocket, just need to find a good plumber).

AfromanGTO > itschrome 06/02/2016 at 10:28

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Get everything in WRITING! So he doesn’t screw you over!

Nibbles > itschrome 06/02/2016 at 10:32

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First time home buyer? Have a lender or mortgage broker go over all your options. You may be able to do better than his offer through FHA. There are programs out there that can still get you in a house with 3% (or less some times) down. You’ll pay PMI but that can be worth it to remove the looming “rent-to-own” specter. As well, the standard down for a mortage is 10%.

Talk with your landlord about this option if it’s something you’re considering. He may be willing to sell traditionally if you come to him with numbers in hand.

itschrome > AfromanGTO 06/02/2016 at 10:33

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absolutely! couldn’t agree more!

itschrome > cbell04 06/02/2016 at 10:34

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never been to jim’s but james brown is my jam!

itschrome > Party-vi 06/02/2016 at 11:13

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I obviously know nothing about this stuff. Thank you for this I’ll look into all this a bit more.

I own dead car brands only > itschrome 06/02/2016 at 11:51

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Check out Grants for grads. I did that and got my down payment covered for free. Helped me a lot! You do have to stay in the home for five years but I assume that’s something you already planned on doing.

You do have to have graduated with a bachelor’s or higher in the last four years.

WiscoProud > itschrome 06/02/2016 at 12:01

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If coming up with cash is the issue, you may want to look into first-time home buyer programs in your area, and if you have a 401k, you can take a loan against it for a home purchase. You repay the loan per paycheck and pay interest to yourself. We did this when we bought our first home.

Other than that, I would try to stay away from rent-to-own if at all possible as well. Assuming you have a $80k home value, you would need a down payment of $4k to get a conventional loan, which will have lower closing costs than an FHA loan. You will also get better interest rates. At any rate, its certainly worth talking to your bank to see what they say. It may be more attainable than you think.

ITA97, now with more Jag @ opposite-lock.com > itschrome 06/02/2016 at 12:01

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As a disclaimer, I used to work for a lawyer who primarily did real estate law. A rent-to-own, known as a real estate contract, is not a bad thing in and of itself. While there are tons of scams out there involving them, they can be a legitimate way for some folks to get into a property. In commercial real estate, they are very common.

If you are considering doing an REC, you really, really need to work with an attorney who practices in that field. That attorney can make sure you understand the process, the risks, draft the contract,represent you in negotiations and conduct the closing should the parties desire. Paying an attorney for a few hours of their billable time should be viewed as a very small investment in your financial future if you’re looking at actually doing an REC. A real estate attorney is also probably going to tell you work with a title insurance company (even though it is not usually otherwise required in an REC) to make sure have a clear and complete understanding of the title of the property. And yes, a real estate attorney can do this research also, but a title insurance company is going to be a lot cheaper. They may well recommend getting an appraisal on the property also.

Telling the current owner that you would like to work through, or at least consult with, an real estate attorney should also serve as something of litmus test with your landlord. A legitimate seller should have no problem this. If a seller balks at using a real estate attorney in an REC, it should be sign to run away from the contract.

On a personal level, I look at an REC for a primary residence from the question of if you are interested in an REC because you can’t conventionally finance the house now, what do you anticipate to change at the conclusion of the contract that will allow you to make that balloon payment? If you have a good answer for that question, an REC may not be a bad option. If you can’t finance now because of the down payment, what makes you think a bank will give you a mortgage in the future to make that balloon payment at the end of the REC. Even if you are seeking a mortgage that might only be for 80% or less of the house’s values (which wouldn’t otherwise require an additional down payment), post 2008, underwriters now look very closely at cash flow. If you’re pay check to pay check, you may have a very difficult time obtaining a mortgage.

itschrome > ITA97, now with more Jag @ opposite-lock.com 06/02/2016 at 12:42

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excellent information. thank you!

also welcome out of the grey!

Roundbadge > itschrome 06/02/2016 at 13:47

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There’s lots of good advice here. I just want to throw in something to be aware of.

I’ve had the displeasure of knowing some shady landlords. They loved doing land-contract or rent-to-own, because they’d stick the prospective owners with a huge balloon payment at the end of the period, and when they couldn’t come up with that payment they’d get evicted. Soon some other sucker would come along...lather, rinse, repeat. The houses they were offering for rent-to-own were always something they bought cheap, slapped a coat of paint on, and then took top dollar for. The landlord came out smelling like a rose and the victims had nothing except shelter for a year or two.

Not that your landlord is that kind of person...I don’t know them. Just something to be aware of.

itschrome > Roundbadge 06/02/2016 at 14:02

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yeah I’ve seen those too. This isn’t that type of situation. we didn’t start renting with a rent to own assumption. it’s just he’s retiring and in two years and wants to unload the house. the house was his wife’s before they got married and they have been renting it out since 2006, we are like the 4th or 5th renters they have had.

we like them a lot and vice verse, infact they approached us vs their own daughter who rents from some one else (she’s not reliable at all) and are more or less giving us the family deal. we’ve been renting for 3 years now from them and it’s honestly been the best experience in my life renting wise. I’m aslo a great tenant so that helps haha but I feel safe doing a deal with them as they and I are both pushing to make sure a lawyer is involved and everything is on the level. I may look out other options after reading this post but we do love the house very much.