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Zhi Finance » From Lease to Own Real Estate

From Lease to Own Real Estate

Credit problems plague people around the globe. These problems can lead to many other issues, not limited to difficulties in purchasing a vehicle, finding a job, opening a checking account, buying or renting a home, etc. For those experiencing credit problems, hope seems to be a long-lost commodity when it comes to the American dream of owning your own home.

The good news is that there are savvy investors who are willing to take the risk for those who have credit problems but are trying to get their lives back in order. The bad news is that such good intentions often come at a fairly high cost to consumers. Getting into credit problems takes a while to recover. For many, the process is long and full of pitfalls and missteps along the way. For those living with the nightmare of bad credit, there are times when the situation seems hopeless.

For this reason, investors who offer rent-to-own real estate to those with poor credit are often seen as saviors on the one hand and villains on the other. However, they are taking a risk that no one else is willing to take, and that person has proven not to be the best credit risk in business. In other words, many will find that they are justified in charging higher prices or interest rates than traditional lenders. After all, if the tenant decides not to honor the contract, their money becomes an issue. Their money will also be needed to make any repairs if eviction becomes a necessary conclusion.

For those investors interested in a “buy and hold” investment, this is a way to make the system work in their favor. Many times the “buyer” will find another property a few years down the road and rent that property for a set period of time. At other times, once they are able to straighten out their credit situation, they will seek other financing options. In either case, there is plenty of opportunity to return the property to the investor with a relatively substantial profit, while the holder has some degree of “pride” in the property during that time, rather than the average tenant who cares little or nothing about the landlord’s property situation.

There is more than one way to move from a lease to an ownership transaction. Most commonly, however, there is a specific period of time, usually 2-5 years, during which those leasing the property can live in the property and once they are able to obtain traditional financing, a portion of the monthly lease payments can be used for a down payment on the property. If they achieve a 20% down payment during this time, their chances of getting approved for a loan are greatly increased. If they (as a tenant) combine this opportunity with a serious effort to improve their credit score, then they should have no problem achieving this goal.

As a real estate investor, this situation is more attractive than a renter for a number of reasons. First, in this case, the repairs become the tenant’s problem, not yours; you have ‘tenants’ who want to take ownership of the property in a timely manner, and you can collect a little more rent each month to cover the money used for the down payment on the property.