So, I have a home in Riverton that I have been unable to sell for a few months. We decided recently to see if someone would like to move in with a Rent-to-Own agreement. As I have been visiting with potential tenets the past two weeks it has occurred to me that most people are not familiar with the generally accepted principals of Rent-to-Own Real Estate. Commonly referred to as a Lease Option, the concept of Rent-to-Own essentially means that you move in and begin paying rent while earning equity. At any point in a pre-determined time frame you have the option of purchasing the home. This approach can be extremely beneficial to both parties, if done correctly. There are 4 Keys to remember when considering a Lease Option.

1. Deposit.

The traditionally accepted deposit for a Lease Option is 3% of the sales price. In most cases this deposit is at least partially refundable when the option is exercised. In other words, on a $200,000 home you would be expected to pay $6,000 up front as a deposit, of which, a portion may be credited to you when you choose to buy the home.

While 3% is most common, it is important to remember that most sellers are more interested in having someone move in, which means they will probably accept less than 3%. Remember that if you can only provide 1-2% (or even less) that you may not be able to expect any refund or credit.

2. Monthly Payment.

Monthly Payments may be more than what you would expect to pay for traditional rent; however this is beneficial to you. It is not uncommon for a seller to credit a portion of the monthly payments towards your equity at the time you finalize the purchase. For a lower payment consider having no money credited.

3. Appreciation.

Typically, when someone leases a home for 1-2 years, it is expected that the home will gain value. To be fair to both parties, most lease option agreements have an appreciation factor included. In other words, if the home is sold for $200,000 today, it may have 6% annual appreciation added to it, meaning that during the first 12 months the home will be sold for $212,000. This is important because the appreciation factor is typically less than actual appreciation, meaning that your equity position improves.

4. Flexibility.

Remember, the goal of a Rent-to-Own is to find an agreement that is mutually beneficial. You gain equity and establish and “alternate” form of credit that will make qualifying for a mortgage much easier. The seller is able to have someone take over their payments and sell the home for slightly more than a traditional payment. That being said, there is nothing wrong with negotiating. My experience tells me that most people don’t have a 3% deposit. Not a problem, simply negotiate terms that are advantageous to both.

So, if you or someone you know is interested in exploring the possibility of a lease option—of if you know someone who may want to move into a completely updated rambler in Riverton, give me a call, or email me at jayhart@cottonwoodmtg.com.

Another Reason to Love Utah

In case you didn’t see, CNN just released a list of the top 100 places in the United States to start a business. The top spot? Bellevue Washington. To be honest, that really didn’t matter to me. What caught my eye was when I saw Salt Lake City at the #15 spot on the list.

Why Salt Lake City?

According to the article, not only do Utahns benefit from the 11 local ski resorts, they also have the Utah Microenterprize Loan Fund which provides start up capital for business requiring fewer than 5 employees and $35,000 initial investment. The article also mentions the Salt Lake County Economic Development Office which has grant programs, free education programs and loan programs available.

How does that relate to Mortgages and Real Estate in Utah?

A strong economic outlook for a state will lead to lower unemployment rates, which in turn leads to higher income levels, which leads to increased consumer spending, thereby creating more consumer confidence, and thus encouraging investing. In addition, lower levels of unemployment leads to fewer foreclosures.

A good state economy will make it easier for new jobs to be created. As individuals move from other states in search of higher paying jobs there will be an increase demand for existing housing as well as new home construction.

As the state economy remains healthy, in spite of the slipping of the economies of neighboring states, investors will experience an increase in confidence regarding lending in Utah. Eventually such confidence will lead to lower interest rates.

Yet another reason why I just never understand the people who tell me they don’t like living in Utah. If you would be more comfortable in one of the roughly 45 States with worse economic conditions than Utah, be my guest. As for me . . . well, you know what I think!