Lease with option to buy homes

July 24, 2008 

Rent to own a home - the lease purchase approach

Why just pay rent when your rent can work toward reducing the purchase price of your next home? With the price of real estate continuously on the rise, it's almost impossible to save enough money to buy a home and live the American dream. Your problem can be solved through a lease purchase, also commonly referred to as a "rent to own home, rent option to buy, or lease with option to buy". JSC Rent to Own Homes specializes in finding your next home. With up to 50% (sometimes more) of your monthly rent working to reduce your purchase price, you can build equity before you even own the home!

We look for quality homes in great neighborhoods with strong community culture and acclaimed schools. Although we focus primarily on single family residences, condominiums and townhouses may also be available as a rent to own home.

Here's how it works:

JSC finds a home that fits your needs and negotiates terms with the Seller or Landlord of the property. We execute a contract and add the property to our inventory. Then we work within your budget to create a lease purchase contract that works best for you. There are three (3) primary qualifications as follows:

1. In order to receive a rent credit of up to 50% (or possibly more) time is of the essence. You MUST pay your rent on or BEFORE the due date of your lease (typically the 1st of the month). This means it must be received by JSC on or before the due date. Any payment received after the due date will result in a 0% rent credit for that month, a late fee may apply and you will not be building any equity.
2. Maintenance is the responsibility of the Tenant Buyer. You are now renting to own and homeownership requires maintenance. This includes things like broken windows from stones or baseballs, clogged drains, peeling paint, broken appliances, burnt out bulbs, lawn work/snow removal, etc. If any major repairs are required to ensure habitability, the owner remains responsible.
3. You need to have Option Consideration. Option Consideration is typically 2.5% to 7% of the purchase price of the home. It is a non-refundable payment, of which 100% is credited toward the purchase price, which binds the lease purchase contract.

Here's an example transaction:

We have a nice 3 bedroom, 1 bath single family home located in a near west suburb of Chicago in a great neighborhood with good schools and a strong community. It has been freshly painted, cleaned, and is ready to move in. The purchase price will be $215,000. Monthly rent payments will be $1,500 and you will receive a 50% rent credit ($750 per month). You need between 2.5% and 7% in up front Option Consideration. Let's say your budget allows for $6,000 for Option Consideration. This equates to approximately 2.8% ($6,000/215,000). You will also need $1,500 for the first months rent for a total initial payment of $7,500.

Please note: Option consideration is not a security deposit. It is a non refundable payment toward the purchase price and is 100% credited toward reducing the price of the home.

Now suppose you paid all your monthly rent payments on or before the due date and you choose to buy the rent to own home at the end of the 12 month lease purchase contract. You will have $15,000 in equity before you even own the home! Here's the math:

You started with $6,000 and by paying your rent on time, your equity position grew 150% (another $9,000) for a total of $15,000 with 12 months. Not a bad deal! Many people find it nearly impossible to save $9,000 in a year with all the costs of living constantly on the rise.

What's the catch?
Now you may be thinking, "OK, what's the catch? This sounds too good to be true."

Answer, there is no catch. At JSC, we believe in providing value to families looking to take pride in home ownership, building community, and living the American dream.

But you still may be asking yourself, "If you find a nice home in a great neighborhood, why would you give me a rent credit of 50% when you could get all the rent from someone and keep the house yourself?"

Answer, there are several reasons.

First, we are trying to build a business by creating value that doesn't exist today. We can only accomplish this goal through quality referrals from our Tenant Buyers, Sellers, and Landlords (and even their neighbors!). Giving back rent credit helps a family to buy a home more quickly than they could trying to save 10% or 20% to put down on a new home purchase. This gives them a head start toward building equity.

Second, when one sells a home through a realty service, a commission of 5-7% is typically paid. In the example above, this can cost more than the rent credit. Since we are not dealing with any realtors in this transaction, there is no commission and we can afford to pass along the credit to you, the Tenant Buyer.

Third, when the Tenant becomes the Tenant Buyer (via rent to own), there is an immediate sense of pride in ownership. Tenant Buyers add value to the community. They take care of their future property, make improvements, and feel good knowing their rent money is working for them (reducing the purchase price) rather than just making their Landlord rich.

There are also advantages for the Seller or Landlord. To find out about these advantages, please visit our Seller/Landlord section.

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