Residential Real Estate and Home Sales and Mortgage Lenders and Banking & Finance and Mortgages and Realtors and Real Estate & Retail

Lease-to-own options becoming more popular

December 8, 2008
With credit tight and the economy shaky, homeowners around the region are increasingly choosing to sell their properties on a lease-to-own basis.

"The lease option, lease/purchase option absolutely is coming back into vogue," said Kurt Flock of Flock Realty Group. "Credit is very tight right now and the rules of the game have changed."

Leasing activity is up 50 percent this year and about 470 of the 20,133 properties offered for sale in the multi-county Indianapolis region now advertise a "lease with option to buy," alternative, Flock said, citing listings from the Broker Listing Cooperative.

The terms of such leasing arrangements vary case-by-case. Some people lease their home with the understanding that tenants will eventually purchase the property. Other sellers, however, don't include an obligation to buy and merely lease the property with hopes they'll eventually sell it at a higher price down the road.

"There's a lot of different flavors of how these things are put together," Flock said. "They're all kind of individually tailored to the circumstances."

But rent-to-own setups were virtually unheard of a few years ago, when homeowners had access to easy credit and low interest rates, he said. Now, with the market tightening, some cash-strapped consumers see lease-to-own arrangements as attractive.

Potential home buyers who can't afford a down payment, for instance, may be able to lease their desired property until the market stabilizes and they can purchase it outright.

Sellers, for their part, can set up a lease arrangement to earn income and fill properties that would otherwise sit vacant.

"It's a way of obtaining some cash flow, covering some debt," Flock said. "Owners who haven't had any luck finding a buyer are going to look to the rental option to get through this crazy market we're in."

But lease-to-own arrangements carry their share of risks, too.

Sellers, for instance, could see the value of their home decline if the lease tenants don't properly care for the property, said John T. Creamer of Century 21 Scheetz. Leasing arrangements also only serve as a temporary "financial Band Aid," that doesn't solve the homeowner's goal of ultimately selling the property, he said.

"Leasing is always a last resort," he said. "It's always a better deal for the tenant than the lessor."

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