The Processes Involved In Rent to Own Homes

When it comes to the home purchase, you will normally need mortgage in order to finance the purchase. However, there are several prerequisites which you will need to fulfill in order to purchase a home this way. For instance, you will need to have good credit score and enough money to make a down payment.

The second option you can go for is the rent-to-own option. Using this option, you rent a home and purchase it before the lease expires. There are two agreements involved in a rent-to-own agreement; i.e. a standard lease agreement and an optional agreement to purchase the home at the end of the lease. However, the terms and conditions and other factors make the process a bit complicated for the ones looking for simpler home purchase options.

Option money

If you want to purchase rented home through rent-to-own option, you will have to pay option money to the seller. It is the fee which is nonrefundable and you pay it to tell the seller that you are interested in buying the home. After paying this fee, you get the option to purchase the rented home by some date in the future. Typically, this fee is the 2.5% to 7% of the total price of the home. In many cases, the option money is applied to the actual purchase price when you pay it to make the purchase finally.

Read the contract carefully

The contract is going to be prepared only by the seller and you will need to follow the terms and conditions mentioned in that contract. If you are going for the lease option, your contract gives you the right but not an obligation to purchase the home at the end of the lease. Thus, you can walk away without buying the home if you do not want to purchase the home

On the other hand, a lease-purchase option binds you in an obligation to purchase the home at the end of the lease. It means that you will have to purchase the home under this agreement whether you can afford or not. Since this contract may be quite complicated than what it may seem, you need to discuss about this agreement with your attorney before the signing the contract.

The purchase price

It should be specified in a rent-to-own agreement when and how the price of the home is to be determined. In some cases, the purchase price is determined at the start of the contract. In other cases, the price is determined at the end of the lease agreement. It mainly depends upon the market situation.

Know if your rent can help you in buying the home

You can also specify if a portion of the monthly rent can go into your credit which you could use while purchasing the home. For instance, the monthly rent you are required to pay every month is $1200. The 25% of the rent is credited towards the purchase price of the home. If it is a 3-year lease agreement, you are going to earn $10,800 rent credit at the end of the lease. It means that you can deduct the credit from the purchase price. When you go for such agreements, you typically pay higher rent so that a reasonable portion of rent could be credited to the purchase price.

Rent-to-own is the great way to purchase a home if you want to avoid getting into the troubles of mortgage. You will have an adequate time period to arrange money for the purchase. Moreover, there is an appropriate room for flexibility in a rent-to-own agreement. All you have to do is to make sure that you know well about the deal you are making.

1031 Reverse Exchange

Over the last few years, the real-estate business has considerably especially in the commercial real estate market segment.  Today, due to the intense rise in the number of distressed property transactions the inventory of real property on the market has amplified significantly. While the fluctuations are indeed not good for some people since they are losing their properties. For the investors who move fast, the changes are also generating investment opportunities.

In the current market 1031 exchange has become very complex process. To grab a potential investment opportunity, the investor has to move very fast which makes him feel that he has lost control over 1031 exchange. No need to worry because reverse 1031 Exchange, complex tax-deferred tax strategy, helps the investor to gain the control back gain .It helps in many ways such as helping the investor move fats to grab an investment opportunity. 

Purpose of Reverse 1031 exchanges

Reverse 1031 exchanges were formed to help buyers who are interested in buying a property but have to sell the existing one. This may let the seller to hold an existing property until its market value rises, in so doing also increasing their own time to sell and take full advantage of the profit. Investors could use real estate tendencies and marketplace fluctuations to increase investment prospects using either a reserve or a delayed or referred exchanged. Generally, there is a maximum holding time that averages around 180 days. After purchasing the replacement property, within 45 days investor must designate up to three properties to sell. After which the investor has 135 days from that point to close on the relinquished property after getting under contract.

There are many other reasons when one finds himself in dire need to sell or buy a property such as

• Sell existing relinquished property in 1031 Exchange. 
• Find an investment opportunity that investor must act on before he even has time to consider listing present relinquished property. 
• The sale of relinquished property may unexpectedly collapse and investor do not want to lose the purchase that is closing soon. 
• Investor may prefer to buy first to eliminate the pressure of having to identify his type of replacement property.

Whatever the reasons are reverse exchange helps the investor to buy replacement property that is according to his likes and also helps in listing of the relinquished property.

Method of Reverse 1031 Exchange

1. The investor must have some source of financial support to buy the replacement property. He cannot rely on the sales of the property. He must connect to other sources like lenders.
2. During the exchange the EAT holds the title of the property since the investor cannot hold the title of the replacement and relinquish property at the same time. This process is called parking.
3. Investor must seek help of a Qualified Intermediary. Only after the selling of relinquished property Qualified Intermediary can transfer the title of the replacement property to the investor and the relinquished property to the new buyer.

Types of Reverse 1031 Exchanges

Exchange Last 

In this type the EAT holds the replacement property title until the relinquish property is sold. It’s more flexible. It’s important to talk to various lenders about of reverse 1031 exchanges so that if anyone has problem with that they can back off at the start.

Exchange First

In this type of exchange the investor first acquires the replacement property. The lender lends money directly to the investor and in the meantime the investor hands over the title to the EAT.

Conclusion 

There is no doubt that reverse 1031 exchanges is more complex than 1031 exchanges but the list of advantages out weight the risks and complexities associated with it.