Understanding A Rent-To-Own Home Purchase

If you're in the market for a new home but can't afford a down payment, or can't get approved for a mortgage, you may want to consider a rent-to-own option. By that same token, home owners looking to sell but who are having trouble finding a buyer or are worried about falling market prices could consider this option as well. Although a rent-to-own home purchase may not be the best choice for everyone, it can be a good solution for buyers and sellers alike – especially in a housing market downturn. Before entering into any such agreement, it's important to understand what a rent-to-own home purchase really is.

Essentially, a rent-to-own home purchase agreement is a two-part contract. The first part is where the seller agrees to rent or lease the property to an interested buyer for a set amount of time. Typically, this time period is 1-3 years. During this time period, a portion of the monthly rent goes toward a down payment for the home. Also during this time period, the home owner will usually charge what is called an option fee in exchange for not listing the home on the market. In some cases, this fee can be applied toward the home purchase.

At the end of the stated time period, the lease ends and the second part of the contract comes in. If the tenant is still interested in purchasing the home, he or she can do so; however, the tenant is never at any time obligated to purchase the home. If the tenant chooses not to purchase the home, he or she will lose the option fee and the home owner can either put the home back up on the market to sell to someone else or they can restructure or renew the lease contract.

There are different scenarios in which the seller and renter could experience benefits or drawbacks with this type of contract. As a seller, a rent-to-own plan can make it easier to initiate a sale sooner. Another advantage to sellers is that it allows them to "lock in" a set price for their home. This can be beneficial if the local market in in a downturn and prices are dropping.

As for disadvantages, sellers should be aware that there are no guarantees in this kind of agreement. At the end of the tenant's lease portion, there's no obligation for them to buy. Therefore, even if you've determined a price of $200,000 in the contract, by the time the renters leave, the house may bring in significantly less. Also, as a seller in this arrangement, you restrict the amount of marketability for your home. During the lease period, the home won't be visible in listings so you are betting on your renters to buy once the lease is up.

There are just as many pros and cons for the renters in this type of agreement. As potential home buyers, the renters may need a little more time to improve their credit or they might need a few years to save up for a down payment. A rent-to-own home purchase agreement can help, as it provides more time for the lessees to acquire a mortgage.

Some people prefer to save up for a down payment on their own, but if you've found a home you love and the seller is willing to do a rent-to-own plan, it might be your best option, since the seller will automatically take a portion of your monthly rent and put it toward your down payment. This would also be helpful to people who find it hard to put money aside every month. With this kind of agreement, it's taken care of for you - as long as you make your rent payments.

As the lessee in a rent-to-own agreement, you are also able to "try on" a home before entering into a bigger financial commitment.

The downsides to a rent-to-own home purchase for lessees are similar to those for anyone who rents a home. While in the lease period, it is still technically the owner's property. Renters would still have to ask permission from the owner before doing any remodeling or modification to the home.

Lessees will also most likely be paying a bit more than the average rent for similar properties. This is because the home owner will probably charge what's called a rent increment. This is how the owner makes up for the money that's going toward the down payment each month. The rent increments on rent-to-own homes can be as much as an additional $200-$300. Mortgage rates may also change during the rental period, which could end up making the home more or less affordable by the time of purchase depending on whether they go up or down.

One of the biggest drawbacks for lessees in a rent-to-own agreement is if they decide not to buy at the end of the rental period. If they choose not to purchase the home, whether it's because their credit still isn't good enough or they just changed your mind, they will lose the option fee as well as the rest of the money that had been going toward the down payment. On a $500,000 home, the option fee alone could come to as much as $10,000.

After learning more about rent-to-own home purchases, you may find it's the perfect solution for you. Or, you may feel it's not worth the risk. Just remember to think carefully and weigh all possible outcomes before making a decision.

Should I Allow Pets In My Rental Property?

This is a common question among landlords, and owners of both short and long term rental properties. Pet friendly rentals are in high demand as they are generally tougher to find, but there are many factors to consider before welcoming in some furry or feathered tenants. Here are a few pros and cons of pet friendly rental properties:

Pros of Animal Friendly Rentals:

• Attract pet owner tenants. There are generally many fewer animal friendly apartments, rental homes, and vacation rentals available, which could put yours on the short list for any pet owners.
• Higher rent prices. You can often charge a little more when you allow animals, either in the form of an additional non-refundable deposit, pet fee, or cleaning fee. This is to pay for any damage or extra wear and tear, but if there is none it's a little extra profit.

Cons of Being Pet Friendly:

• Risk of damage. Pets could chew or scratch the furniture or have an accident on the rug. They could also leave behind their scent or some unwanted guests such as fleas.
• Turn off non-animal lovers. Some potential renters would prefer a home that does not allow pets, particularly if they have pet allergies.
• Liability. Check with your insurer to see if your homeowner's policy covers you should someone be injured by a pet staying at your property (in the event of a dog bite or cat scratch for example.) Some policies limit the species and/or breed of animals that are covered.

If you do decide to allow pets at your rental property remember that you can still limit which pets are welcome. You might dictate the size, age (to avoid young animals that may not be housebroken and are more likely to be destructive), breed, and number of pets permitted.

Consider providing some helpful information for pet owners in the property or on your website. You could include directions to nearby dog parks, nice spots for walks, pet friendly restaurants, and pet stores as well as information on any local regulations relating to pets such as leash laws and any restricted areas.

Superbowl Rentals

Indianapolis Super Bowl Rental Apartments

As we get further into the football playoffs the teams still left (and their devoted fans) have their sights set clearly on the Super Bowl! According to the Indianapolis Star as many as 100,000 to 150,000 people will descend upon the city when it hosts the big game February 5th. And where will all those people stay? Many Indianapolis property owners are hoping it will be their place.

Some are offering their personal homes for rent, and others are marketing their rental properties for a short term Super Bowl stay. There is no shortage of Indianapolis Super Bowl rentals for fans, media, and other attendees to choose from, but with prices in the thousands for a weekend rental, they'll have to pay a premium.

Would you rent out your home for a big event like the Super Bowl?

Market Your Vacation Rental Property Online

Plans for a vacation, honeymoon, family reunion, or weekend getaway often begin online. Put your investment property in front of potential renters by advertising it online. While a website for your rental property can be a great idea - it sets your property apart from the many other options, and lets vacation planners get a good feel for what the home is like (check out www.carolinabeachbreeze.com for example) it's unlikely that someone will come across the site simply by finding it through a search engine. 

It would take a lot of time, money, and effort to have a single property site outrank one of the big players in the vacation rental market, and so it may be a better use to resources to have your home listed on one or more of the popular listing sites. Here are a few to consider (Prices listed are those posted on the websites at the time of this writing):

VRBO.com

Vacation Rentals by Owner(R) boasts more than 42 million visits per year. You list your property ($349.00 and up per year) and then communicate directly with potential renters and handle the booking from there.

FlipKey.com

FlipKey listings are also displayed on TripAdvisor.com, one of the most popular online travel sites. After a 60 day free trial the cost of an annual listing starts at $299.99 or $34.99 a month.

PetsWelcome.com

If your rental allows pets appeal directly to the animal lovers with a listing on PetsWelcome.com. This site costs $150 per year (after a free first month.) Other similar sites include DogFriendly.com and BringFido.com. 

Here are a few tips for making the most of your online listing:

• Include lots of great pictures. Images make an emotional connection with the viewer - use them to convey what a great time a vacationer will have at your property. Include pictures of each bedroom so potential renters can see exactly what they will be getting.
• Provide a ton of information. Fill out every field, and use the property description to the fullest. Talk about the home, location, town, nearby attractions, restaurants, and more. Give tips to help renters enjoy their stay, and help them figure out how to get there.
• Respond as soon as possible. Anyone who contacts you has likely inquired about several other properties as well, and those they hear back from first will generally get more attention.
• Keep good records about where your inquiries and bookings come from. This will help you evaluate where to best spend your money in the future.

Best Places to Invest in Real Estate in 2012

Reuters recently published an article highlighting that the United States remains the top choice for most commercial real estate investors followed by Brazil according to a survey of members of the Association of Foreign Investors in Real Estate (AFIRE). The report noted that many commercial real estate investors have focused on "gateway" cities such as New York, Washington, San Francisco, Los Angeles, and Boston which has driven up prices in many of those markets. The AFIRE survey also showed that 60% of respondents plan to purchase additional commercial properties in the United States in 2012 while 42.2% noted that they believed that the US would offer the best bang for their buck. Many investors also have great confidence in Brazil with 18.6% of respondents indicating that Brazil showed the best value for their financial investment.

Real the full article here:
http://www.reuters.com/article/2012/01/01/us-commercialproperty-survey-idUSTRE80002P20120101

Other related stories and resources:
Areas with the Lowest Vacancy Rates
Cash Out Refinancing on Investment Properties
Investment Property Loans
Rental Returns / Capital Returns - Creating Positive Cash Flow

How To Choose A Term For An Investment Property Loan

When you finance an investment property you need to decide how long a loan term you would like, or how long you will take to repay the loan. Generally investment property loans can have a term of 30, 20, 15, or 10 years.

To choose between a longer term such as a 30 year fixed rate mortgage, or a shorter term such as a 10 year mortgage consider whether it's more important to have a lower payment commitment each month, or to pay less overall during the loan.

A longer term investment property loan spreads the repayment out over a longer period of time, which means the monthly payment will be lower. Shorten the loan term and you raise the monthly payment, but significantly reduce the amount of total interest paid by paying off the mortgage years sooner. In addition mortgage rates tend to be lower for shorter term programs.

Here's a quick comparison between a 30 year and 10 year loan term for a $200,000 loan amount (This is simply an example to illustrate the potential interest savings, not currently available pricing.):

30 year fixed rate mortgage:
Note Rate: 5.000%
Monthly Principal and Interest Payment: $1074
Total Interest Paid: $186511.93

15 year fixed rate mortgage:
Note Rate: 4.000%
Monthly Principal and Interest Payment: $1478
Total Interest Paid: $66287.79

In this example the potential interest savings of $120,224.14!

If you can afford the higher payment consider your other options for that money. Could you invest it somewhere else which would offer a greater return that would offset the interest savings? (In the example above would an investment of $404 a month over 30 years see a greater return than $120K?) Of course every investment has some level of risk, but it is important to weigh your options before deciding which loan term makes the most sense for your scenario.

Unique Move In Specials To Attract New Renters

Looking for a way to find new renters for your vacant investment property? Take an idea from commercial apartment complexes by offering a "move in special." Try one of these unique move in specials to set your property apart from the competition:

• Free use of a moving truck. (You could even provide movers for a high end property.)
• 1/2 off the first month's rent.
• Gift certificate to a nearby grocery store to stock the fridge.
• Restaurant gift certificate - either a nice place to celebrate the new home, or pizza for moving day.
• A hook up allowance - a discount equal to the cost of hooking up new utility, cable tv, and internet accounts.
• Gift card for a home improvement, home decor, or furniture store to help the new tenants make the place their own.
• Gift card for a gas station to fill the tank a few times.

Advertise the move in special in your rental ads and hopefully you'll be exchanging the keys for a rent check very soon!

Why Not to Become a Landlord

Interest rates are near historic lows. Home prices in many markets have not been this low in a decade. The US stock market is crazy and Europe's looks even more out of whack. Your smart, savvy, and think that now may be the time invest in a rental property. Well...Bankrate.com's recent Debbie Downer of an article may have you thinking twice about your decision. While this blog is geared for real estate investors, it never hurts to take a step back and determine whether you are a good fit for becoming a landlord. Bankrate.com's author, Pat Curry, notes that vacancy rates are up (note..this may date the article a bit since rates are down in many places) which can lead to stress and opening up your own pocketbook to meet your monthly mortgage obligations. Mr. Curry also points out that applicant credit histories are getting worse. Considering the tightening of lending guidelines, less people are qualified to borrow money. This fact has pushed more people with less than stellar credit into the rental pool. Evictions and dealing with tenants who owe back rent can be a nightmare. Plus, the down payment for investment property loans is now considerably higher than it was just five years ago. Still ready to take the plunge?

For more on the article, visit:
http://realestate.msn.com/article.aspx?cp-documentid=20619924

Other Helpful Posts:
Is Being a Landlord Right for You?
Fannie Mae Investment Property Guidelines

How To Winterize An Investment Property

Part of managing one or more investment properties could include winterizing those homes. It's important to protect your investment against the hazards of freezing weather and winter storms. How to winterize your investment property will depend on whether the home will be occupied or vacant during the colder months.

Here are some steps to follow to prepare your property for winter:

• Turn off the water at the sources to any exterior hoses, irrigation, and AC units. Drain the water from the hoses and lines before storing.
• Reverse the direction of any ceiling fans. Switch the blades to rotate clockwise to recirculate warm air that rises to the highest point in the room.
• Check insulation to be sure it will sufficiently insulate the home as the temperature drops.
• Store any outdoor furniture in a shed or garage.

If the home will be empty throughout the winter, for example a summer vacation rental that won't see renters until spring, you might want to consider having the home professionally winterized. This is generally done by a plumber and involves draining the water from the entire plumbing system and using an anti-freeze solution to ensure that the pipes and other fixtures aren't damaged by freezing water. 

The benefit is that the electricity can be turned off so that you don't have to pay to heat an empty home all winter to keep things from freezing, but you will need to pay the professional to return in the spring to de-winterize the property.