Lease-to-Own

What do you see as the benefits of lease-to-own?

The argument for lease to own is that the total amount you have paid is then subtracted from the purchase price.

Try the toll brothers properties in Willamsburg - North side peirs etc - and theirs plus rockrose's in LIC. Actually, just about anything in LIC, Willburg, Harlem, etc these days that has been on street easy more than say 6 moths. For examples, on Halstead for those areas, if you see something like for sale, chekc under "other listings in this building" and you often see the EXACT same unit also for rent. That is how you start the discussion, even if the building is not marketing it. There are some luxury, brand new condos in Harlem and LIC I have seen for sale or rent for literally a year now, empty.

I thought lease to own 50% of what was paid in rent was subtracted from the purchase price. You'll need a lawyer to have an agreement on purchase price, etc. What happens if you agree to a purchase price in '09 and 12 months later prices have dropped 20%.

From what we've heard from a few brokers that are willing to lease to own, 50-75% gets applied to the purchase price.

We wanted to do lease to own because we don't have enough cash for a down payment but do have enough for rent. We don't want to rent for a year and then have that cash not apply to anything. My fiance's current apt. is reeeeally small as well. She bought it before the boom and it was great for her. But for two people it's not practical.

I guess the downside is that if we lock in a price in the near future, that it will drop by 10-20% in a year. We both feel like the economy is going to take til at least mid-2010 to improve, and we think that brokers know that as well. Unfortunately, while brokers think lease-to-own is a great option for these times, a lot of owners who bought at the height of the bubble are having a very difficult time coming to grips with the fact that their apt.'s are overvalued and don't want to adjust their selling prices to what they really should be.

UESBandit, thanks for the suggestions. We were looking to stay below 59th in the city though. Not really feeling brooklyn or LIC, even though there are some nice properties out there.

Here is your lease-to-own scenario in a LIC beautiful waterfront condo. (one stop from Manhattan).

You can lease 1Br with outdoor space at $2,500 or 2-3 Br. starting March 15. You can lock the price now and close within 6 months, this way your 6 month rent will be applied towards your purchase price. Or you don't have to lock anything now but make them an offer till your lease is expires (within a year).

elena
(broker)

I'd sooner lease-to-not-have-to-own-anytime-soon. Is that available?

Barskaya: LIC is nice, but not really what we're looking for. We wanted Manhattan.

Alanhart: LOL. In a perfect buyer's world that would be my preferred scenario.

"I'd sooner lease-to-not-have-to-own-anytime-soon. Is that available?

Yes its called a rental.

starry, do you expect to rent at market rates and have 50% (or any %) count toward a down payment? Good luck!

The only rent-to-own stuff I've ever seen involves a higher than normal rent. The benefit for the renter would be to lock in a low price now while building up the down payment (through excess rent). In a falling market I don't see the benefit.

looking2return: We would be willing to pay a higher than market rent if it gets applied to the purchase price down the road. For someone who seriously wants to buy, it works out better than just straight renting for a year, and then looking for another place to buy 8 months in (which means more time and more moving costs).

A rent-to-buy option lets you build equity and lets you stay in once place.

Starryeyes: Bear in mind that the sales price on the rent-to-buy option is set when you enter the lease, and your option generally expires no later than a year. If the market is on its way down, like it is now, despite building "equity" through rent you still end up with negative equity.

Let's say you contract on an option-to-buy on a $500K apartment and pay $3500 in rent, with half your rental payments to be applied to the purchase of the apartment if you were to exercise your option.

A year later, the market is down and the apartment's value is $450K. You have a contract to buy it for $500K, and have $21K in credit towards the purchase price, resulting in an effective sales price of $479K.

If you go through the purchase, you will have ended up overpaying for the apartment after having overpaid on the rent for a year. A lose-lose situation. If you end up not buying, assuming the fair market value of the rental would have been $2500 instead of $3500, you would have paid $12K over the course of the year for an option that was always going to be a lose-lose in this market.

If I were you I would crunch the numbers very carefully before entering into a rent-to-buy arrangement.

OnTheMove: You do make a good point, but then you are also assuming that you are going to flip the apartment immediately once the option expires. A lot of people that just straight out bought apts in 2006 and 2007 have negative equity right now. But they're holding on to their apartments, will ride the cycle out, and will perhaps make money when they sell in 2011, 2012.

I'm not saying we'll only do a rent-to-buy. But if there is dislocation in the market, we want to take advantage of it. We don't necessarily have to buy at the trough of the cycle to make money later on. Right?