Renting to own can be option if used cautiously

Buyers who are short of enough cash for a downpayment, closing costs, moving expenses and property improvements may find themselves gravitating toward a rent-to-own option.  It also is a route that consumers in the process of repairing their credit my want to try.

But such a concept — which I have found to be employed infrequently — must be pursued with great care.

The way rent-to-own works rests on an agreement between the buyer and property owner as to the amount of rent and the percentage of it that will be applied to a purchase.  Their lease must be linked to a purchase contract that specifies the sale price.

But big question mark is whether the market will have gone up or down at the time the property is to change hands.

If up, then the buyer is in luck, having negotiated a bargain months in advance.  If down, there will be regrets: Although the buyer has only a legal right to exercise the option, he or she has no legal obligation to do so.  But the amount of rent likely would have been higher than the going rate to account for the purchase.

As BrickUnderground.com columnist Mike Akerly points out, it is vital for every detail of the arrangement to be spelled out in the contract. 

For example, what happens if the buyer cannot obtain financing? Will there be any compensation if the developer decides to forsake his plans for a condominium and retain the building as a rental? Are there circumstances under which the contract can be changed without further negotiation?

Although I have referred to developers, who currently enjoy a tight condo market, renting to own may prove useful with any owner who is desperate to sell. With either seller, the pitfalls are many, so wise is the consumer who retains a knowledgeable attorney before signing on the bottom line.

Tomorrow: Gospel according to whom?

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

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