Money

Sometimes life just doesn't go the way you planned.

While on floor time last week, a gentleman called who was looking to move his family into Wilmington from Cincinnati due to a DHL transfer. The home that had spurred the phone call was vacant and had been on the market for quite sometime. During our phone conversation he told me that he still had a home to sell in Cincy so he was looking for a home for lease/purchase. I asked him why he would want to go that route because interest rates were low. He then told me that he could not afford 2 house payments and that he needed to learn more about Wilmington before he bought. I told him I would make a couple phone calls and call him back.

I found out that, theoretically, the owners would be willing to do that except for one thing. They had already rented it. So I called him back and said that if he would come into the office, we could talk about his options and that I would run some homes and try to find ones that had been on the market for awhile. My theory being that if a home is hard to sell, the owners would be more responsive to a lease/purchase idea. We made an appointment for him to come in on Friday afternoon.

"But wait!" you cry. "If he can afford a house payment and rent, then he can afford 2 house payments." Exactomundo.

When life gives you lemons, make lemonade. Okay, so I have a non-buying buyer and I'm in a slump. You just have to work with what you got.

Friday afternoon rolls around and I get a message from my guy and he tells me that something has come up so he would like to reschedule. We set up another appointment.

In the mean time, I am running figures and looking for homes and scratching my head as to why someone would want to tie themselves to a lease/purchase but not tie themselves to a bona fide purchase. Hmmmm....

The way a lease purchase works is generally this: The home is rented but there is an agreed upon amount paid up front to the seller as "insurance" that the home will be purchased by the renter. This applies to the purchase price, just like a downpayment to a bank, and is non-refundable. The seller acts more or less as the bank with the loan amoritized and the rent/payment includes principle (money that is applied to the actual amount borrowed) and interest (usually about 2% more than a conventional loan). After an agreed upon amount of time (1-2 years), the renter finances the home thru the bank and the seller gets paid off. All of this has to be put into writing of course, either through a realtor or an attorney.

The alternate way that a lease/purchase works is that the rent does not apply to the purchase price but the contract states that the renter will purchase the home in a set amount of time (1-2 years). There is still money up front.

In both scenarios, the deed is still held by the seller and, even though the renter is responsible for taxes and insurance, all remain in the seller's name. The advantage to the seller is that he still gets the tax right off.

But why, you ask, would someone want to purchase a home in this fashion? What are the advantages and disadvantages of this transaction. And why would a realtor want to get caught up in such a strange situation? And whatever happened to that DHL transferee? Find out soon in the next installment...