Rent-to-own homes become growing trend
It’s an economic secret that no one wants to talk about, but renting homes with the option to buy them is a growing trend across the country.
There are some obvious reasons for the growth. The economic downturn in 2008 left many foreclosed homes vacant and distressed. It also left many would-be homeowners, or former homeowners, with bad credit and putting them out of reach of traditional home loans.
While banks, real estate agents and others in the industry may snub the concept, others like Marty Orefice with Usleaseoption.com are embracing it. Orefice blogs advice on the concept, stating it can benefit both the landowner and homebuyer.
Basically, there are three types of situations where lease to own is an option, according to Orefice. The three are: someone owns a home they want to flip fast, a developer seeking to reinvest in a community by enticing people with stability to live there, and a landowner anxious to seal a deal.
For would-be homeowners, such a deal would allow them a place to live while they rebuild their credit, save up money for a down payment, nail down a sale price in a volatile market, and find out more about the home and any possible issues with it by living there.
The landowner also wins because someone is there taking care of basic upkeep, the home is producing monthly income, and he or she has a ready buyer when the landowner is ready to sell.
One businessman, developer John Foley, is taking the concept to a whole new level in Omaha, Neb. He and business partner, Phyllis Peterson, have a plan to buy 52 distressed homes, renovate them, and offer them in a rent-to-own option to the community’s working poor.
Their plan hinges on the approval of the Nebraska Investment Finance Authority (NIFA). The authority would need to allocate around $6 million in federal low-income housing credits for the project to become a reality.
Foley and Peterson will be presenting their plan to NIFA, but Executive Director Tim Kenny isn’t as optimistic. Dollars for the indirect federal subsidy are hard to come by and only a third of applicants are approved, he said.
Under the plan, those meeting eligibility would pay around $850 a month rent with some of that going toward a special account to own the home. Those living in the home for 15 years could buy it for around $20,000.
Investors in the project would get federal tax credits for 10 years, Foley said.
Orefice said the one thing those considering this type of plan should do is use a good real estate attorney that is distinct from the seller. An attorney would make sure the renter/buyer is aware of the contract’s terms and that there are no loop holes that would pose a problem for the renter.