By Lori Johnston
For the Journal-Constitution
Published on: 06/01/08
New sales strategy pops up to benefit both sides in tough market.
The suggestion is offered at the beginning or tacked onto the end of ads for resale homes and is even being used to lure buyers into new neighborhoods from intown to the suburbs: "Rent to own. Will consider lease-purchase."
Individual sellers seeking to unload a mortgage payment and developers with an oversupply of new homes are offering the arrangements. Some sellers say mentioning the possibility of lease-purchase or lease-option results in more showings, and ultimately, a deal.
"If you can match a seller who wants to sell with a buyer who wants to buy, it really can allow both to achieve their goals in a positive way and result in a win-win transaction," said John Adams, a real estate broker and investor. "It is an ideal adaptation of an age-old home buying strategy to our current market situation."
It's something he's seeing more of, especially as some sellers with mortgages on two homes have given up trying to sell and are desperate for someone to cover a mortgage payment.
Tammie Carpenter, a real estate agent with Metro Brokers/GMAC Real Estate, agrees that the perception of a lease-purchase is changing. She's seeing them offered for everything from affordable homes to high-end properties.
"Where we didn't used to like to see a lease-purchase rider on the homes, we're starting to offer that to our sellers, as well as our buyers," she said. "If you're one of those where you've been out there for a while, you can get somebody in there. They're covering your mortgage, and you're going to sell [in] six months, a year."
The fact that new developments, such as Historic Westside Village intown and Millard Bowen Communities' Wildwood neighborhood in Buford, have been using lease-purchases is "absolutely unprecedented," Adams said.
"They are doing this to unload the property. Anything, anything to get them occupied," he said. "They're sitting there empty —- somebody's had to pay principal, interest, taxes. It's just a different way of getting money in the door."
If it's something of interest, whether you're a buyer or seller, here are the pros and cons. Adams estimates that only one in every three such deals actually results in a sale.
"There are some risks, but for the most part, it's a great way to get people in," Carpenter said.
The buyer advantages
1. It gives you wiggle room to improve finances.
The buyer can spend the time improving credit and paying off debts. "In today's market where first-time home buyers have few, if any, conventional mortgage sources to choose from, this is a very real way of trying on homeownership, seeing how they like it and building a down payment and improving their credit at the same time," Adams said.
2. It helps you come up with a down payment.
Carpenter said the security deposit or a certain amount of dollars for monthly rent goes toward the down payment, in most cases. For example, Adams explains that $200 of the monthly rent, for 24 months, could go toward the purchase price. That means there's a $4,800 credit applied when the sale closes.
3. It gets you a home that already could have equity.
If you wait a year, the property could increase in value and cost more. "You purchase the property at today's value, not at the future value," said Monte Murphy with Keller Williams Realty Cityside.
4. It's a chance to test a home, neighborhood
"You get 12 months to date the house, to see if that's the relationship that you really want to be ready for," said Murphy, who did lease-purchase for a home he recently sold in Decatur. "You want to date it to see if you can actually maintain homeownership."
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