NEW YORK -- Do you own a house you'd like to sell, but can't?
Are you eager to buy yourself a house, but can't?
That's the story all over America: sellers and buyers passing each other like ships in the night. So here's an idea that you both could try: leasing the house with an option to buy.
Lease-options are commonly used by real estate investors who buy, rent and resell single-family homes. But they're equally good for someone who is struggling to sell a house or condominium in a slow real estate market. These deals attract buyers who have the monthly payments but can't afford the down payment.
With a lease-option, the potential buyer moves into the house as a tenant, paying rent each month. But the rent is much higher than is normal.
Instead of paying, say, $800 a month, he or she might pay $1,200. The extra is credited toward the down payment. There may also be a cash payment upfront. Some landlords ask for $5,000 or more; others don't.
At the end of a specified period (usually one to five years), the tenant finds a mortgage and buys the house. If he can't afford to buy, the landlord keeps all the extra payments.
Real estate investor Dan Kinter in Carmichael, Calif., gives all his tenant-buyers a mortgage himself and requires no cash upfront. In return for these easy terms, however, they pay a higher-than-normal price for the house and a higher-than-normal rent.
If the house would usually rent for $600, Kinter might charge $1,200, and credit only $100 of the rent toward the purchase price.
At the other end of the scale, Hillsboro, Calif., real estate investor Bub Bruss says he once credited100 percent of the rental payment toward the purchase price, because the house was in poor condition and the tenant agreed to make all the repairs.
There are no firm rules for lease-option agreements. Everything is negotiable. For self-protection, all parties need a lawyer to check the papers before they sign.
* Tips for the seller: To find a tenant-buyer, put the following ad in the real estate section of the newspaper: "$4,000 moves you in," or "Buy a house, no money down," depending on your terms. "I've never been unable to find a lease-option tenant," says Bruss. "In a slow market, lease-options get someone into the house and bring in some money to pay the mortgage."
One problem in marketing deals is getting a real estate agent interested, Bruss says. The commission structure isn't attractive. The agent earns a percentage of the small upfront payment, but has to wait until the sale goes through to collect the full sales commission.
* Tips for the renter-buyer: Some lease-options are available for no deposit upfront -- only a higher monthly rent. That's attractive but risky. The more money you put into the house the better. If your down payment is too small, the bank won't give you V VTC mortgage and your lease-option payments will be lost. Visit a mortgage bank before taking this deal, to find out what you'll need to qualify for a mortgage loan.
Make sure that the option is assignable -- meaning that you can transfer your rights to someone else. That's your fallback position, if you ultimately can't raise the money you need to buy the house. If home values have risen, and the option price is under the current market price, that option is valuable. You can sell it to a real estate investor to recoup some of the money you paid.
The ultimate price of the house is critical. Bruss does one-year options, fixing the price of the house at its current market value. Kinter typically does three-year options, setting a minimum price for the house and charging 50 percent of any appreciation over that amount.
Investor Ernie Kessler of Rockville, Md., advises tenant-buyers to look for owners who are anxious to sell and will set good terms -- including a fixed price, so that "real estate appreciation doesn't blow you out of the water."
1990 Washington Post Writers Group