It's funny.
The internet is full of information on just about everything. But there's
almost zero in-depth information about how to buy the house you're renting from your
landlord.
This video will give you a quick and dirty overview of the process of buying the house
you rent.
Let's say after a lot of hard work, you're finally getting established financially.
You've saved up some good money and you're starting to think about buying your first
home.
You've been starting to wonder if, maybe, you should try to buy the house you're renting
right now.
You really like the house and the neighborhood.
You wouldn't even have to move.
You're wondering if that's something people even do, buy the house they're
renting. But just ask around.
I'll bet you'll hear stories
about people who bought the homes they were renting.
I think it's not common but I think it's more common than people think.
If you've never bought a home before, you may very well be stuck in that beginning stage
where you don't even know where to begin.
Buying a home the normal way is crazy enough but buying from your landlord is a different
kind of crazy.
And, naturally, you're afraid of making mistakes and being taken advantage of by people
who know the whole crazy process a lot better than you do.
But as you study and start to feel comfortable with the home buying process, it'll be a
lot easier for you to take the first steps to trying to buy the house you're renting
or to buy any other house for that matter.
I hope this video will help you get unstuck and you move forward toward buying a home.
Hi, I'm John Wake with RealEstateDecoded.com.
I've been a real estate agent for over 10 years and more important than that, I'm
a geeky, analytical guy.
Used to be an economist.
And I've spent a crazy number of months analyzing the ins and outs of the process
of how renters buy the homes their renting.
For some adventurous people, this video tutorial will be enough to get you started.
If you're more of a look before you leap kinda person, like me, I'll be giving an in-depth
course called, "Buying the House You Rent."
Please check it out at RealEstateDecoded.com.
Here we go!
Buying a house from your landlord can go surprisingly smoothly.
First, you two already know each other.
You know how much or how little you can trust your landlord and your landlord knows the
same about you.
You may actually be on friendly terms with your landlord, especially if your landlord
just has one or two rental houses.
Knowing each other changes how people buy and sell homes.
Another big reason landlord-to-renter sales can go more smoothly than normal sales is
that your landlord can make a lot more money selling to a renter like you.
Your landlord MAY not have to pay 5, 6 or whatever percent of the value of the house
to real estate agents like they'd have to if they sold to almost anyone else on the
planet.
Your landlord can also save money because they don't need to spend money on painting,
carpet cleaning, landscape maintenance and so on and so forth before selling the place
to you.
And your landlord won't have any vacancy costs.
A few months without any rent money coming in while the house is being sold can ruin
a small landlord's year.
In addition, selling to a renter can happen fast.
Your landlord might get the house sold and have the money in their pocket months sooner
than if they tried to sell the house the normal way
Finally, you and your landlord will tend to be on your very best behavior.
You both know if negotiations fail, you'll still be renting the house and that you'll
still have to work together.
That's why buying the house from your landlord sometimes goes unusually smoothly.
You both benefit by working cooperatively together.
Now let's do a basic overview of the mechanics of buying the place from your landlord.
Your first two big questions are, "Does your landlord want to sell?" and if so,
"Does your landlord want to sell at market price?"
To find out if you landlord wants to sell, you need to simply ask your landlord if they
would be interested in possibly selling the place to you.
You could do it in a short email or a phone call.
I have some draft language in my full course.
If your landlord uses a property manager and you don't know your landlord personally,
you can ask the property manager to find out if your landlord might be interested in selling
to you.
At any given point in time, most landlords will NOT be interested in selling to you
or to anyone else.
But before you pitch the idea to your landlord, you should first find a good mortgage loan
officer and find out if you can borrow enough money to buy the place.
You don't want to talk your landlord into selling the place to you and then have to
back out later because you can't get a mortgage.
The best case scenario is your landlord approaches YOU and asks YOU if you want to buy the place.
Then you're golden.
You're over a huge hurdle to buying from your landlord.
The first thing you should do in that case is the same as before, find a good mortgage
loan officer and find out if you can borrow enough money to buy the place.
Okay, let's assume that one way or another you know your landlord is willing to consider
selling the place to you and that you can afford to buy the place.
So the money part is taken care of, more or less.
Now you have to work on the price part and the paperwork part.
Now, you need to find out the answer to the second big question, "Does your landlord
want to sell it at market price?"
A lot of home sellers are crazy people.
My rule of thumb is that at least 20% of the homes you see listed for sale won't
sell because they're so overpriced.
Hopefully, your landlord isn't part of the crazy 20%.
If your landlord won't pay for your real estate agent, which is very common in
this situation, I'd suggest you pitch the idea to your landlord of basing the sales
price on an appraisal.
Basing the price on an appraisal is VERY common when the buyer and seller know each other.
So pitch the idea to your landlord of picking an appraiser together, splitting the cost
of the appraisal and then deciding if you both want to move forward with the sale AFTER
you see the appraised value.
Also pitch the idea that your landlord will give you a credit at closing worth, say, 3%
of the sale price.
You'll use that money to help pay your closing costs or to lower the sales price.
After all, if your landlord isn't paying for a real estate agent for you, you'll
have to pay for your own real estate agent or attorney and your landlord may be saving
a lot more than 3% by selling to you.
Besides price and your landlord's contribution to your costs, here are some other things
you might want to discuss up front with your landlord.
You'll probably want everything currently in the property like the refrigerator, washer,
dryer, etc. to be included with the house.
You absolutely want to have an inspection contingency in the contract.
You want any written agreement to give you X number of days to inspect the property and
if you don't like what you find you can cancel the contract during those X days
and get a full refund of your earnest money deposit.
You may also want to ask your landlord to pay for a 1-year home warranty for you.
And you probably want to mention, so there's no misunderstandings later on, that all your
rental deposits will be returned to you in full when you take ownership.
Do NOT sign anything yet.
You're in the informal, feeling things out, negotiation stage.
If it gets to the point that you think you'll be able to eventually come to an agreement
with your landlord, it's time to find a good real estate agent or attorney, if don't
already have one, and have them write up your offer.
They'll take what you've already informally agreed to and use it as the basis to write
up a full, detailed, multi-page, official written offer for you to sign.
Don't sign anything that hasn't been drafted by or reviewed by your real estate agent
or attorney.
Even if you've tentatively agreed on the major points, the written offer will have
a lot of other stuff in it, too.
Expect a few written counter-offers to go back and forth before you come to a written
agreement with your landlord.
By the way, in this scenario, you'll have to pay your real estate attorney or agent
out of your own pocket.
If the deal falls through later on for any reason, you'll be out that money.
So before you bring in your own real estate agent or attorney, make sure you feel there's a good chance you'll
be able to come to an agreement with your landlord.
If you can come to an agreement in writing with your landlord, congratulations!
You're under contract.
Your attorney, agent or you, will take the signed, written agreement, and probably a
check for your earnest money deposit, to a title company or some other closing agent
to "open escrow."
The process is a bit different in different regions of the U.S.
We'll cover the Northeastern and Southeastern states in a bit but for now let's assume that
you live in the Midwest or West.
So the money part, the price part, and part of the paperwork part are now taken care of.
As soon as you have a signed contract with your landlord to buy the place, you need call
your loan officer and apply for that mortgage officially.
They have weeks of work to do before they can give you the money you're borrowing.
If your contract has a Buyer Inspection Contingency clause in it - which it definitely should - you now need
to schedule your home inspections as soon as possible after the contract is
signed.
Ask your attorney or agent for advice on the kinds of inspections you should have done.
It can change from place to place.
At the end of the general home inspection, have the inspector give you a tour of everything
they found.
Send the written home inspection report to your real estate attorney or agent and get
their advice.
You'll have to pay for your home inspector out of your own pocket.
If the deal falls through later on for any reason, you'll be out that inspection money
but, to be fair, it's the same thing in a normal sale.
If the home inspection finds a big problem and your inspection contingency clause period hasn't
ended, you should be able to cancel the contract and get a full refund of your earnest
money deposit, it depends on how your Home Buyer Inspection clause was written in your contract.
If the problem is big but not necessarily a deal killer, you can try and negotiate a
price reduction, a seller credit or home repairs with your landlord.
Before the sale can close, your closing agent will make sure everything you and your landlord
promised to do in the written contract is done before they transfer the money and
the ownership to you.
For you, the hardest part is pulling all the money together, of course.
If you live in an escrow state in the Midwest or West, your mortgage lender will wire all
the money you're borrowing into the escrow account.
You'll have to wire all the money to cover your down payment and closing costs into the
escrow account.
This amount is called, "cash to close."
Hopefully, you negotiated seller credits so your landlord will contribute some money
to help cover your closing costs.
Your closing costs will likely be equivalent to 2 to 5% of the sale price.
Yep. 2 to 5% of the sale price!
It's huge!
Closing costs are particularly high in places that tax home sales.
Anyway, you have to transfer a LOT of money from your bank account into the escrow account
before the deal can close.
At the actual closing, once all the money is in the escrow account and everything else
agreed to in the contract has been done, the closing agent will take that money and pay
everyone who needs to get paid.
Most of it will go to the seller and the seller's mortgage company but a lot of other people
need to get paid as well, for example, your mortgage company, the title insurance company,
the closing agent's company, and so on and so forth.
At the same time everyone gets paid, the settlement agent will do the final paperwork steps to
transfer ownership of the house to you.
Congratulations!
You own the place now!
And now you have own a huge mortgage to pay too.
The closing process in the example above was for most of the Midwest and West.
A lot of states in the Northeast and Southeast do closings differently.
They do "table closings" where you don't wire your money into an escrow account, you
actually carry a paper cashier's check to the closing table to cover your remaining
down payment and closing costs.
That is, you pay your "cash to close" with a check at the closing table and your lender
also brings a check to the closing table with all the money you're borrowing.
Another common variation of the scenario can happen anywhere.
If your landlord uses a property manager, your landlord may use the property manager
to be the landlord's real estate agent.
In that case, at the beginning when you're feeling out the possibilities of buying the
place, you would probably be to talking directly to the property manager instead of directly
to your landlord.
Be aware that in this scenario, the property manager does not represent your best interests.
Whether they're the seller's exclusive agent or a dual agent, you should still hire your
own attorney or agent to review everything before you sign anything.
One last scenario.
Your landlord might say to you,
"Hey, you've lived in the house a long time, you don't need a home inspection and
you can save money if you don't have an real estate agent or attorney.
We can just go to a title company or a closing attorney and have them do all the paperwork for
us for the sale."
This scares me.
It's dangerous for buyers, especially first-time buyers.
It doesn't take that much longer to get your own agent or attorney involved and it helps
you make sure you get a fair deal.
This video is just a broad brush overview of the process of how to buy the home you're
renting from your landlord.
I hope you found it useful.
Please remember that real estate laws and customs change from state to state, sometimes
from county to county, and your particular situation will, of course, be completely unique.
To dive deeper into many of the details and the options you have, please consider buying my upcoming
online video tutorial course, "Buying the House You Rent."
Several of the lessons in the course are free.
You can check it out at RealEstateDecoded.com.
The course focuses on buying the house you rent but you'll learn a ton about the normal
home buying process.
You'll know more than the vast, vast majority of home buyers when you buy your home.
Don't forget, renters sometimes buy the houses they renting and when they do it can go unusually
smoothly.
Also remember that by being prepared you greatly increase the odds you'll be able to buy
the place at fair market value or less.
If this video has been helpful to you, please "Like" it and I would love to hear your comments
If you've ever bought a house from your landlord, I would LOVE to hear how it went.
What went wrong?
What went right?
What tips do you have for other people thinking about buying homes from their landlords?
Thanks everybody! Take care.
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