Palatine, Ill.—A new rent-to-own program at The Heritage of Palatine, a condominium development in the northwest Chicago suburb of Palatine, Ill., is helping turn once skittish prospects into renters for a year, and into buyers after that.
“Since we’ve rolled it out, the response has been tremendous,” Jim Duerr of Des Plaines, Ill.-based R. Franczak & Associates, the builder of The Heritage of Palatine, tells MHN. “I’ve been pleasantly surprised. I thought we would get some dribs and drabs coming in, but that’s not what’s happened. The buyers coming in are enthused about buying, but a little worried about the marketplace.”
The rent-to-own program’s two steps help circumvent that worry. Here’s how the program works. The four remaining units at the development are all two-bedroom, two-bath condominiums that rent for $1,950 a month. Of that monthly rent, $500 a month goes toward the down payment on the condo’s purchase. In the course of a year, $6,000 is accumulated toward earnest money.
“And if they throw in a little more cash, they have enough for 3.5 percent down with the FHA requirements, and away we go,” Duerr says. “They’re able to qualify for their mortgage, and they know what their purchase price is when they enter into the agreement with us. They lock in today’s price a year from now, and we help them save up their deposit. After 12 months as a renter, they are verified by us as having good credit, helping them gain their mortgage approval.”
The program helps would-be purchasers sidestep concerns fueled in part by the media’s drumbeat of negative news regarding the real estate market, Duerr says. Many buyers are fearful of buying now, because they’re convinced home prices will decline still further. “This helps them overcome their reticence,” he adds. “They recognize the great deal they’re getting by locking in their price upfront. And the last four units are all fully decorated models, so they’re getting a lot of extras with that excellent price. It‘s a huge bang for the buck for those savvy enough to understand that now is the tine to pounce on opportunity.”
Heritage of Palatine is a community built in two phases. The first phase, finished in late 2009, yielded a single building featuring 48 condominiums. A second phase of seven row homes began construction in the fall of 2010. Franczak is just now seeing it’s first move-ins to the row homes.
Despite the success of Franczak’s rent-to-own program, Duerr believes such an initiative is not right for every builder. “We own our company outright, so we’re able to tailor a deal to a particular buyer without any outside interferences,” he says, adding there’s also a decided downside to a rent-to-own effort.
“It takes a lot more hands-on to transition interested parties into buyers, because of the need to do credit reports, income verifications, and [to] set them up with mortgage brokers to prepare them for what’s coming a year down the line. We want no surprises for us or the buyers, other than that they’re pleasantly surprised by how seamless the transition is from renting to owning.”