Since My company sponsors a credit program, I wanted to take a few posts to talk about lease purchasing a home. I think the topic is pretty important in the Memphis area since Lease purchasing a home seems to be so popular here. First let me explain to you that lease purchasing a home is merely glorified renting up until the time in which you actually purchase the home. Sometimes the terms of a lease purchased home are slightly better than what you can get renting the home, but both situations almost always end up with the same result……. with the buyer / renter moving out with nothing to show for it.
The city of Memphis has almost double the average percentage of non owner occupied properties than most major metro areas. This gives the perfect environment for investors to lease purchase a home to someone who really has no hopes of actually buying the home. Since the major difference between lease purchasing and buying a home really entails a large non refundable down payment given at the beginning of the lease instead of a security deposit which is given back at the end of the lease (the property being in the same conditions as it was at move in of course) this actually allows the investors to make a larger profit with often times less risk. This is a practice that is seen all over town, and in all price ranges. From fifty thousand dollar properties to half million dollar homes, you can always find some investor ready to lease purchase a home instead of rent it out.
Since the title of this post is, when is the wrong time, I’ll focus on that. The answer to that questions is almost always. There are only a few good reasons to lease purchase a home. The wrong reasons are abundant. The number one time when it is a bad idea to lease purchase is “when you want to buy a house but don’t want to wait to do it the right way.” This is usually the reason most people lease purchase a house. They have the down payment now and even though they know it would be better to wait, and get their credit in order,they want it now, not a year from now or six months from now, but NOW. This is just the worst way to buy a home, and almost always ends up with the buyer losing the down payment.
The second worst time to lease purchase a home is when you are under a time limit to be out of your current place and you can’t find exactly what your looking for in a rental so you just decide that buying a home would be better than renting anyway. Right? Then you make a hasty decision and choose a home that isn’t right for you. but it’s yours (or so you think) Then when the time comes to actually purchase the home, you are happy to give up your down payment and move on to something better suited for you, which is what you should have done in the first place anyway.
As you can tell I’m not a big fan of lease purchasing a home as a buyer/renter….. Of course for an investor this is great, you get a renter that will gladly give you a few thousand bucks as a non refundable down payment and as an added bonus they act like the house is actual theirs and take significantly better care of it than a normal renter does. In fact the only down side that you get as an investor is that you normally have to accept someone as a renter that has worse credit than average, but the extra money you get to keep as a down payment usually makes up for the added risk of that.
Oh I almost forgot the worst part about making the decision to lease purchase a home. That is the fact that most of the homes are over priced, and there is such a short supply of available homes.
All in all Lease purchasing a home is almost always a terrible idea, although in a few situations in can be good and I’ll discuss that in my next post.
remember if you are in the market for homes for sale in the Memphis area click on the contact me page and let’s connect to see how I can help you!