Blog: R.E. Tales
(Hey, they all can't be pretty...)
There are two parts to a Lease/Purchase kind of arrangement, just like the name implies. In the first part, the buyer pays a substantial amount of money down, which is non-refundable. With this, basically, he buys the right to purchase the property at a set time and at a set price. So you can buy, for instance, at 2013prices, but in 2015. Then, in the second part, each month, the buyer pays a sum of money to me, a sum which exceeds what normal rent would be. The difference goes, along with the downpayment, towards the purchase price. If you buy at or before the set time, your initial deposit and all the extra money is subtracted from the agreed-upon purchase price and then your mortgage begins.
Let’s give some numbers to illustrate this. Suppose the purchase price was, to make it easy to figure, $100000. Suppose you put down $5000. But I need $10000 down to give you the mortgage. We are $5000 short of that goal and need to make the shortfall in extra payments spread out over a period of up to 2 years. OK, now suppose normal rent for such a home would be $750, but you are going to pay me $1000/month instead. The difference of $250 will go toward accumulating the $10000 I need in order to give you title to the property and accept the mortgage from you (a mortgage can be thought of as a fancy promissory note, a piece of paper that the buyer gives to the seller, making promises to pay and under certain terms). Twenty months later, that $250/month has accumulated and adds up to the $5000 you were short in the beginning, so you are able to then give me a mortgage and take title to the property. At this point, you become the owner and I am the mortgagee. You now pay the taxes and do all the upkeep and so forth, but you no longer pay rent. Expect the payments you make each month to be less then they had been. The appreciation of the real estate is now yours.
Since this is not a regular rent situation, I do not ask for security deposits or last month’s rent Your accumulating equity takes care of that, in my opinion. You may feel secure in making improvements to the property since you will own it some day. A renter cannot feel that way. But be sure to check with me first. And you will have a greater share of the upkeep than a normal rent situation would entail. I feel it is my obligation to provide you with a property that is right (everything works properly) to start with. Then it is your responsibility to keep it that way.
If you do not keep your part of the bargain, you will lose the downpayment plus any amount extra accumulated on it as this all non-refundable. That’s sort of what you could give up. What I could give up of course is the chance to sell to the next guy who walks in and who wanted to pay cash (or whatever), only you got there before him. This has happened to me. And I lose any appreciation because I am selling in 2015 at 2013 prices. Everyone wants you to end up buying it and the more you have in your stash deposited with me, the greater the likelihood will be that you will complete the sale as we planned upon, which is what I really want. This system allows you to get a foot in the door and buys you time while letting you in right away.
Some are merely amusing. some can help you immensely. All are interesting.
After 40 years, I've learned a lot, & acquired unforgettable experiences. Follow these long enough and you'll eventually get the whole book. (Names probably changed, for obvious reasons.)