Using A Rent-To-Own Strategy In A Down Real Estate Market

06-19-08

Is there a way to make money in a real estate recession? You bet. Consider buying foreclosures and offering them on a rent-to-own policy.

There are more foreclosures on the market today than ever before. We used to only see foreclosures in blighted areas, but now they are everywhere - even in upscale residential neighborhoods.

There truly has never been a better time to purchase foreclosures than right now. Because the interest rates are so low and there are so many homes on the market, the savvy investor can get some real bargains.

Before purchasing any piece of property, it is always important to know your market. Make sure that the property is not in an area that has been blighted. Although it may be tempting to purchase a home for a few thousand dollars in a blighted area, but it is a poor investment. Not only will you have a difficult time trying to sell the home, but you will also have a tough time getting renters who will pay you on time.

If you purchase a foreclosure in a solid area, you should be able to find people who are interested in owning a home but simply don't have the down payment they need yet. These people are perfect candidates for the rent-to-own option.

This option allows the buyer to move into the home immediately with a down payment that is a fraction of the 20% down payment required for a conventional home loan. Each month, a portion of their rent goes toward the eventual purchase of the home. The lease period (usually two years) gives them time to acquire the financing needed to eventually purchase the home and repair their credit, if necessary.

Once you reach the end of the lease agreement, there are several possible scenarios. If the renter complies with the terms of the agreement, they have the option to purchase the home for the agreed upon price. If they do, you have made your money off of your investment and the renter is now a homeowner. If they choose not to purchase the home (maybe they found another home they like better, etc.) or if they break the lease for some reason, you get to keep all of the rent credit money they have built up and they get to walk away. If the renter still wants to purchase the home but they are not yet able to do so financially, then you may choose to either extend the term of the rent-to-own agreement or sell/rent the home to someone else.

One of the most frequently voiced downsides to renting homes is that tenants often do not take care of the property. In the rent-to-own scenario, however, tenants are more likely to take care of the property because they intend to eventually own it. You are also more likely to have tenants who make their payments on time in this scenario because: (a) they don't want to be in violation of the agreement and risk forfeiting the rent credit money they have accumulated, and (b) they want to be able to secure the best interest rate possible when obtaining their future home loan.

The bottom line is that whether you sell the home or not, you still make money on it using the rent-to-own strategy.

Mark E. Moebius
CEO of MILJONAIR Development
3451 St. Albans Road
St. Albans MO 63073

636-300-9000

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