Owners Renting Out Properties Before Selling Them

This is a rush transcript from "Your World With Neil Cavuto," April 7, 2009. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Meanwhile, a growing trend in real estate: More owners are trying to sell their properties by letting people rent those properties first.

My next guest says, this move is more popular than ever.

Real estate specialist Katrina Campins is joining me right now.

So, do you rent with an option to buy? Is part of your rent going toward the purchase?

KATRINA CAMPINS, CEO, THE CAMPINS COMPANY: This has become very popular. It’s called a lease option.

And a lease option is basically a lease with a twist. In addition to your traditional lease, you have a purchase option in the agreement, whereby the tenant and the landlord agree to a sales price for a set period of time.

Now, of course, in order for the tenant/potential buyer to have the flexibility, they have to give up something. That something is an option. The option may be in the form in a down payment, lump sum, at the beginning, or a portion of the rent may be held in escrow, which could later go towards the purchase price if the tenant decides at that point in time to exercise the option.

Now, of course, the tenant would lose the money if they decide not to exercise. And this has become very popular, because it really, from a seller’s perspective, increases your pool of buyers out there. And if a buyer doesn’t have a down payment or if their credit...


CAVUTO: How do you know they are buyers, Katrina?

I mean, a lot of them could be just, look, they want to rent a nice house and they have no intention of buying. So, they could be stringing the...

CAVUTO: You are covering your costs.

CAVUTO: Good point. Good point.

CAVUTO: If you’re a seller in this market, it’s really a win-win, because you’re covering your costs.

And you have the potential to selling it at the end of that time. Or, if you don’t sell it, you get this money that is in escrow, and your property has probably appreciated about that point in time, because, hopefully, the market will rebound by that point.

And, from a buyer’s perspective, if you have bad credit, it will give you time to really help your credit situation or build up a down payment. And, in a lot of cases, because we don’t have the job security that we had years ago, really, it allows the tenant the flexibility of renting, as opposed to buying.

And, if they want to buy the property, they can exercise it if they indeed keep their job in that location, because job security is a big issue nowadays, as you just discussed.

CAVUTO: To put it mildly.

Katrina, thank you.

CAVUTO: Another option, by the way...

CAVUTO: Real quick.

CAVUTO: ... if someone does not want to put — I’m sorry.

CAVUTO: Go ahead.

CAVUTO: One thing that I want to add is, if someone does not want to risk the — the possibility of losing that deposit, they can do the right of first refusal.

And that basically just gives the tenant or potential buyer the opportunity to have the first right to purchase a property if someone comes along at the end of the lease and offers the seller a certain amount of money. So, that is another viable option.

CAVUTO: Very good.

Katrina, thank you.

CAVUTO: Thank you.

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