The rent-to-own scenario, which is also called a “lease-option” requires a potential buyer to pay a down payment of as much as 5% of the purchase price up front and pay rent monthly while they live in the property he or she intends to buy at the end of the lease.

Part of the rent goes to the owner, and a portion of the rent, called a “rent credit”, goes into an escrow account and is later applied toward the purchaser’s down payment when he or she is ready to buy.   The price the buyer will pay for the house or condo at the end of the lease is determined at the time the “rent-to-own” or “lease option” contract is signed.

The PROS

1. Its a great way to get into a house or condo that you like now without having a large down payment.
2. It gives you an opportunity to “try” before you “buy”.
3. It gives you time to make repairs to your credit rating if its necessary.
4. The owner is obligated to sell the property to you at the price agreed upon, even if the property increases in value.

The CONS

1. If you decide not to purchase the property at the end of the lease, you loose the down payment you put into the transaction at the start of the lease, however the rent credit monies that has accumulated in the escrow account is refunded.
2. If the property decreases in value, you are required to pay the price agreed upon at the signing of the lease, even if the property is worth less.  If the property does not appraise for the amount agreed upon, you may not be able to get a loan and fail to be able to close on the deal, again loosing you down payment money.
3. If the owner of the property fails to pay the mortgage and the property is foreclosed on, you may loose all the money put into the transaction.

As you can see, there are advantages and disadvantages to purchasing property rent-to-own.  Weigh the pros and cons carefully, and if you decide that rent-to-own is right for you, find out as much as you can about the owner’s financial situation, vigorously negotiate the price to be paid, and have a Real Estate Attorney thoroughly review the lease option contract before you sign it.

For more information about rent-to-own (lease-option) properties available in Brooklyn.  Please feel free to contact me using the phone number below, or via email.

Seller financing is when the seller of the property holds the mortgage for the buyer instead of a bank or some other lending institution. If you own your Brooklyn, New York home outright and you currently don’t need the equity from the house, seller financing might be an option for you.

Here are ten items that should be included in a rental lease:

1. Your name (the landlord) and the name of the tenant and anyone else that will occupy the rental property.
2. The address and a description of the rental property subject to the lease.
3. The amount of rent the tenant must pay, when that rent is due, if there is a late fee if the rent is not paid on time and how much will it be.
4. Information about the security deposit such as how much, whether it will be collecting interest, and under what circumstances will it not be returned at the end of the lease.
5. The respective duties of the landlord and tenant regarding the maintenance of the rental property.
6. What will happen in the event that the tenant disturbs other tenants’ “right of quiet enjoyment”.
7. Under what conditions can you, the landlord,  enter the rental unit.
8. Are pets allowed, and if so, what kind, how many and are there size restrictions.
9. What happens if  the landlord dies or decides to sell the building during the lease term.
10. Whether the tenant must pay the attorney fees and costs incurred in a lawsuit that the tenant loses, and whether the landlord will pay the tenant’s attorney fees and costs in the event the landlord loses a lawsuit.

This is just a sample of what can be included in a rental lease.  One of my favorite websites on the web that has fantastic information for landlords is mrlandlord.com.  Its a website by experienced landlords for landlords.  One of the many great features you’ll find on the site is a sample lease.

Of course to make sure that whatever lease you decide to use contains everything you can legally include that is of benefit to you, consult with an attorney.

Happy Landlording…..

Under Section 1031 of the Internal Revenue Code (IRS), a ”Like Kind Exchange” allows an investor to defer federal capital gains taxes when business or investment real estate or personal property is exchanged rather than sold.

What Are Like Kind Properties?

In order to qualify as a tax-deferred exchange, the Relinquished Property (the property you want to exchange) and the Replacement Property (the property you want to acquire) have to be of “like-kind”.  Real estate must be exchanged for other real estate and personal property must be exchanged for other personal property.  In the case of real estate, the type of property is not important.  Land, office buildings, apartments, rental homes and condominiums are all real estate and qualify as “like-kind” property.

The Qualified Intermediary

In order to satisfy the requirements imposed by the IRS for a valid 1031 exchange, you must have a qualified intermediary to facilitate the exchange. What does that mean? Before you put the property you want to exchange under contract, you are required to find a person or entity to act as a qualified intermediary, also called a facilitator or accommodator, who is a neutral party that takes possession of the proceeds from the sale of your property, uses the funds to purchase the new property, then transfers title of the property to you. (Please consult your attorney)

Time Requirements

According to Section 1031 you are required to identify potential Replacement Property(ies) within 45 days after the closing of the Relinquished Property. Generally you are limited to identifying three potential Replacement Properties.

In addition, an you must acquire the Replacement Property(ies) within 180 days of the closing of the Relinquished Property. Failing to meet either of these time requirements will prohibit your ability to defer any capital gains tax using a 1031 exchange.

To Sum Things Up

If you are an investor that owns one or more investment properties, look into a 1031 exchange the next time you want to sell a property.  It could save you thousands of dollars by letting you defer capital gains taxes to a future time, in theory until death potentially avoiding them all together, which makes a 1031 exchange  a wise tax and investment strategy as well as an estate planning tool.