Quite a few of our recent posts have been on creative financing in real estate, and many referred to using a residential lease agreement during some portion of the creative purchase of a home. The lease is important in creative home buying as it allows the buyer to occupy (or use the property) prior to closing.
Recently, a reader "DR" had a few questions about a recent blog article [Rent To Own Homes] where he addressed the issue of seller default prior to the closing of the transaction, but after a residential lease agreement had been executed. He asked:
With rent to own homes, what happens if the "buyer" pays their higher-than-normal deposit and their higher-than-normal rent, but the home does not appraise for the purchase price in the contract? With interest rates as low as they are now, an outright purchase or outright residential lease agreement might make the most sense unless the renter/buyers are extremely careful. (Many landlords will sell the home to a renter at a price close to the appraisal.) -DR
The first part of the question is answered in the purchase agreement, where it addresses what will occur should the house not appraise when the closing date arrives. Typically, a real estate contract will allow the buyer to receive all paid deposits and terminate the agreement, or allow the seller to reduce the price to the appraisal amount, or even let the buyer move forward with the closing regardless of the appraisal amount.
Creative Financing Blog Posts Are For Buyers Who Cannot Close Conventionally
The second part of the question which addresses "making an outright purchase" is perhaps misguided. If a buyer has the ability to purchase a home without creative financing (meaning no lease agreement is necessary), then the buyer most likely can negotiate a better price and would do so. The reason that we provide these blog posts on creative financing is to address the times when "making an outright purchase" is not possible.
As far as an "outright residential lease agreement," I do not understand why somebody would not give themselves the ability to control their destiny with the property. A standard residential lease agreement would not allow for any future upside gains or usage for the tenant, so I would still urge somebody to do the lease purchase rather than just the plain tenancy lease.
Other Popular Resources For Creative Financing In Real Estate
- Rent To Own Homes - Buyer Beware
- The Real Estate Finance Cycle Rolls On
- Buying Property With Creative Financing
- Home Sellers Expand Their Market With Creative Financing
- Cautious Home Buyer Wants To Rent With An Option To Buy
- Lease Purchase Agreements Continue To Grow In Popularity
You will see more from us in the future on creative home buying techniques as many prospective home buyers are going to face troubled credit issues after undergoing short sales on their previous homes. If you have a home to sell and would like to better understand how creative home financing techniques could save you tens or even hundreds of thousands of dollars, just drop us a note and we will schedule a time to chat.
Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.