People in Southern California are constantly seeking out the opportunity to rent-to-own, or, Lease Option, as it was known in earlier years. Lately, it seems that these are not available as much as they used to be, if at all.
What is a Lease Option?
A lease option is a popular way to obtain a right to buy property during the time that you are renting it. Its popular because of the low investment up front and the time that you have to obtain the money or credit necessary to make the ultimate purchase. It also gives the buyer thinking time while occupying the property to get to know the property characteristics as well as the quality of the neighborhood. Because these are usually quicker than an escrow, the landlord begins collecting cash right away and so does not have to deal with the burden of a vacant home as in an escrow. So, both parties have benefits.
Problems: Rising Market, Need for money now, and legal problems.
Because the market is in a rising mode the past few years, most landlords are reluctant to lock in the price to this year that they won't be receiving, it at all, until next year, or, perhaps two or three years, depending on the lease that is negotiated. Further, the property owner usually needs the money now, to purchase another home, to pay off taxes, they are separating, or to fund an estate plan. Most of the owners I've interviewed about selling are not just selling because they are tired of owning a rental. They have a pressing need for the cash.
Finally, the main reason I advise most property owners is the legal nightmare that has been experienced with the changes in the laws favoring tenant rights in California. Should the tenant decide to withhold payment of rent, the landlord is now faced with complex legal and contract issues instead of the fast-moving Unlawful Detainer action. The non-paying tenant can hold possession of the property much much longer with a Real Estate Purchase Agreement than just a rental agreement. Meanwhile, the landlord receives no rent. The landlords obligations to maintain the property, pay the taxes, pay the mortgage, insurance, pay the property manager, and now the lawyer, become a financial nightmare. I would not now advise anyone who owns property to enter into such a house of horrors. Its sad to see this has happened here as so many people would like to be able to get a foot in the door. Unfortunately, a few legal changes along with a few bad seed types of buyers have made this a no go on today's market. What I can suggest is that there are many 1st time homebuyer programs available through FHA and Conventional that make it possible to get into a home with 3% to 5% down, these will also allow seller assistance in closing costs or gift letter from family.
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