You have most likely heard a lot about expressions such as rent to own, rent to buy or vendor financing. Do you realize what their real meanings and also ramifications are?
As everyone knows, in the traditional real estate buy-sell transaction, there are numerous parties concerned, but the main two are the buyer and also the seller of the property. What we also know is that, in all the transactions created by these parties, the pattern will be the exact same: the seller wishes to get the top possible amount of money for his/her property, while, however, the buyer wants to spend the money for lowest possible sum for that property.
Following negotiations, they both accept a price for that property and will proceed with the deal. They negotiate and make an arrangement – the seller feeling happy at having asked for the highest price that he/she believed the buyer would wish to purchase the property; and the buyer feeling the exact same at being able to get the property at a decreased cost.
But imagine, for a second, if the seller of the property doesn’t get the price that he/she is seeking or the buyer does not have sufficient money to spend on the deal, what’s the answer?
This is when both of the parties can use a method called rent to own. Rent to own is one of the tools frequently utilized in vendor financing. The seller works as a bank and there is a private trust deed that’s made, also called as a RealEstate Contract or Real Estate Note.
There will probably be a unique provision about rent to own – which, in certain states, is also referred to as rent to buy – stated within the prevailing vendor finance contract which is akin to what a traditional mortgage note would typically include.
The buyer agrees to rent the property from the seller for generally 24-36 months – or for any agreed-upon period of time – with the comprehension that he/she practices the first right to purchase the property from the seller at the completion of the contract period. Rents paid into the contract are afterwards credited as part of the deposit for the property.
Through this fashion, the buyer gets much more value for what he/she will agree to pay for and the seller gets paid more. Truly, the rent to own or rent to buy mechanism is really a win-win situation in the real estate transaction – one that both property buyer and also the seller can greatly gain from.