Month: September 2009

Sign of the times

In today’s buyer’s market, it’s not uncommon for some sellers to be saddled with two monthly mortgage payments—one on the house they live in, and one on the house they’re trying to unload…a predicament few people can afford for long.

For these sellers, listing the latter as a rent-to-own is an attractive option. This type of transaction can benefit a certain type of buyer, too.

Similar to a car lease, a rent-to-own (or, what is known in real estate parlance as a lease-option or a lease-purchase; more about that in a minute) works like this: Interested buyers pay what are called rent premiums—an amount slightly higher than the usual rent, with a portion of that money going toward an eventual down payment. (For example, if the monthly rent premium is $1,300, $500 of that might go toward the down payment.) At the end of a set period—usually around three years—buyers have the option to buy the house, using their accrued rent premiums as a down payment. (In this case, that’s $18,000.)

Additionally, renters have to pay a one-time option fee, a set amount usually in the four digits—let’s say, $5,000—that is also used toward the down payment, bringing the total down payment to $23,000.

If, however, the buyer decides not to purchase, they forfeit the option fee and all the rent premiums to the seller…which translates to a tidy source of income for the seller in an otherwise dismal seller’s market.

So why aren’t there more rent-to-own listings in Charlottesville’s housing market? (A cursory search on the Charlottesville MLS pulled up only five such listings.) ReMax associate broker Charles A. McDonald says that precisely because it’s a buyer’s market, there is no reason for buyers to lock themselves into long-term commitments when there’s “so much other inventory to choose from.” For Sale signs abound.

In fact, McDonald says rent-to-own deals make sense primarily for a specific kind of buyer: those who have less-than-prefect credit scores and/or no money for a down payment.
 
A closer look at the ins and outs of such deals for both buyers and sellers:

• The purchase price is locked-in from the very beginning, so if at the end of three years, housing prices have skyrocketed, the seller still gets to pay the lower, agreed-upon price (same goes if prices collapse). Related to this, the seller is contractually prohibited from selling to another buyer should a better offer come along.

• Because buyers stand to forfeit their down payment should they decide not to buy, they should be fairly confident this is a house they want. But this works both ways: If the buyer discovers the house has serious problems (faulty foundation and wiring, asbestos, etc.), the lost fees pale in comparison to the exorbitant repair costs they could encounter as owners.

• Another hurdle for buyers: They cannot be late making payments or they lose their entire rent credit—the amount that goes toward the down payment—that month. If this becomes a habit, it could mean thousands of dollars lost per year. The flip side, of course, is easy money for sellers.

• Unlike normal renters, rent-to-owners are responsible for all repairs on a home even when they’re still technically renting it. Think of it as homeownership in training.

• Understand the terms: Most real estate professionals call rent-to-owns lease-options or sometimes lease-purchase deals. Even though the terms are sometimes used interchangeably, there is technically a difference. A lease-option means just that: The buyer has the option to the buy the house. A lease-purchase means they’re contractually obligated to…an easily missed but critical difference.

Finding your level

The most bizarre iPhone app, I think, is the virtual spirit level. Call me “old school,” but I’d rather rely on an actual tool to hang stuff—one that I can drop from a ladder and splatter in paint with impunity.

The spirit level was invented in the 17th century and is still being used in much the same form by carpenters today. It’s a straight piece of wood or metal with a flat side on the bottom and a glass tube that’s filled with a clear liquid with low viscosity—typically, ethanol. A small air bubble settles precisely in the middle of two marks on the tube when the level is level.

You should use a level for framing projects and to ensure that all doors, windows and artwork you hang are flat on the horizontal and straight on the vertical planes. You could get more high-tech and use a laser level, which projects a beam of light to indicate level and plumb. With more technology, however, comes more instructions and more opportunities for user error (on my laser level’s second use, I broke off the pin that mounts the thing to drywall). If you’re a D.I.Y.-er like me, you just don’t have time for extra nonsense.—Katherine Ludwig

Andrea Copeland puts it best herself: “You can turn on the TV every day and see me doing something different.” The host of three ongoing shows on Charlottesville Public Access Television (Channel 13), she has a platform to talk about all kinds of things that interest her—from local nonprofits (on “Inside Nonprofits”) to breast cancer survivors (on “Speaking with Andrea”) to racism and classism (on “Breaking the Chains”).

“I’m not bound to doing depressing things,” she says. “I think we get enough of that. We can talk about serious issues, but I like to end it on a high note.”

She herself is on a high note at the moment, having just founded a TV production company called Positive Channels. Three years ago, though, when she moved into her apartment off Commonwealth Drive, she was going through what she calls “a rough time in my life.” She was just back from New Jersey, where she’d been trying to pursue a broadcasting career. It hadn’t worked out, and around the time she decided to come home to Charlottesville, where she was born and raised, her paternal grandfather died.

It was a sad time for Copeland and her close-knit family. But when her relatives urged her to take the furniture from her grandparents’ Esmont house, it became much more than a lucky break for someone in the process of apartment-hunting. It became a way to knit the past together with the present. Now, her living and dining rooms are a living (and comfortable) link to the home where she’d visited her grandparents as a child.

“To see how everything worked out, in the midst of all that pain and sadness, much good came of it,” she says.—Erika Howsare

“Everything from the china cabinet, the dining room set, the sofa, the coffee table and these two chairs belonged to my grandparents. When I came back from New Jersey, I had no furniture. I was temporarily living with my parents and got a second job to buy furniture. Then my grandfather died in March 2006. We were trying to settle the estate, and everybody else [in the family] already had everything. [My cousins said,] ‘Take this furniture.’

“At the time, it really didn’t have meaning to me until we put it in place. It’s nice to be able to come into my home and know that this was my family. My dad is so happy to keep it in the family.

“The china cabinet is near and dear to my heart because everything in it was my grandparents’ (china and glassware). I would go to their house [as a kid] and see [these dishes], but just never paid attention to them. As I’m cleaning everything and putting it away, my mind is constantly on my grandparents. I particularly love the hummingbird goblets. At Christmastime I change it all to Christmas dishes. It weighs a ton; my father said, ‘It’s staying there until you move!’

“I do remember sitting at the table. I was telling my dad, I want to get some furniture polish to cover this up [worn places on the tops of the dining room chairs]. He said no, it adds meaning. And it does. To know they sat at the table for years; [to think of] the years they pulled these chairs out. They had this table since 1980-something. They were very good at taking care of their furniture.

“Grandpa used to sit in the wingback chair, and my grandmother would sit in the rocker. I can remember exactly where it was in their house; [the wingback] sat beside the organ. I sit there all the time with [my cat] Curly behind my head, because I like to look out the window.

“That Afghan is one my grandmother knitted. To sit on her couch and wrap up in the Afghan, they’re here with me. When I’m in this room, to sit here when I’m working on producing the shows, everywhere I move it’s a reminder of my grandparents.”