How much rent should I pay on a house that costs $210,000 to buy?
December 8, 2010 6:35 AM   Subscribe

I'd like to rent a house that I'd eventually like to buy, but I don't know how much to offer. Any ideas?

We have a house. We are moving to another city, where we have found our dream house. Our house is on the market, and has been for a while. The market here is okay, and I think the house will sell in the spring. We'd like to make an offer on the dream house (it's been on the market for a while, no one else is likely to buy the house). We need somewhere to live, and rather than rent an apartment while we wait for old house to sell, I'm wondering if we can offer to rent the new house.

I know the owners of the new house. They own it outright and aren't living in it. We'd like to say, basically "hey, we're going to have to rent something anyway, and we want to buy your house. We'll offer you $210,000 contingent on our house selling, and, in the meantime we'll rent." Problem is, I have no idea how much to offer in rent. I'd like to avoid getting a real estate agent, and just use their agent, since there isn't going to be a lot of negotiating on price, and using one agent might save some money for the sellers. I'll be talking to that agent later this week

How do I calculate reasonable rent? Our mortgage payment looks like it would be around $1,100/month. So do we offer to pay that? Is there a normal way to structure these deals or is this just never done?
posted by dpx.mfx to Home & Garden (7 answers total)
It depends on what the market in your new town will bear. Look at craigslist, and find comparable rental properties, and offer something in that range. If they are doing you a favor by keeping the house off the market, you might offer more money.
posted by pickypicky at 6:44 AM on December 8, 2010 [2 favorites]

Look up the average price-to-rent ratios for your new city and suggest that. So if the P/R ration is 20, offer $875. If it's 15, offer $1150.
posted by justkevin at 7:08 AM on December 8, 2010

The other thing you're going to have to talk about with the owners is what happens if your house doesn't sell. It's a lot harder to sell a house with current tenants, and eviction is quite difficult in some locales, even if it was originally a fixed term lease. So you're going to want to make it very clear (in discussion and in the lease you sign) how long they are giving you to sell your house and what happens if you don't (presumably you move out).

As for price, the fact that you are hoping to buy the house doesn't really change the real value you are getting out of living in it before you do. As others have said, look at what other similar properties are renting for and offer that.
posted by 256 at 7:20 AM on December 8, 2010

Response by poster: justkevin, where do I find the p/r ratio?

I guess I was thinking that we are doing them a favor - I mean it when I say that no one else is likely to buy this house any time soon - there is just no one moving to this area with the income to do it. So if we rent somewhere else on a year lease, then they're going to have to sit on it for another year (which maybe they're willing to do, I guess).

Will def. look at craigslist - why didn't I think of that before!
posted by dpx.mfx at 7:29 AM on December 8, 2010

Also, remember that the current owners likely have other holding costs, apart from the mortgage. For one, they have to pay property taxes and maintenance.
posted by schmod at 7:59 AM on December 8, 2010

I'd like to avoid getting a real estate agent, and just use their agent, since there isn't going to be a lot of negotiating on price, and using one agent might save some money for the sellers.

In my experience, it only saves money for the seller's agent. I say get one as it makes these types of things much easier to do
posted by zephyr_words at 8:46 AM on December 8, 2010

You should offer market rent PLUS a little bit extra for the "option to buy". As I see it:
1. You want the current owner to take the risk of you not buying this house (due to capacity or otherwise).
2. You want the current owner to put his financial plan on hold for your possible future purchase.
3. You want the current owner to take on the responsibility of being a landlord with other risks associated with it.
Hence, you should compensate the current owner with rent + option. Since the house was on the market for sometime, that is something you can use to your advantage in negotiation.
This contract will be complicated, it may be worth it for you to pay a real estate lawyer a couple hundred dollars to look it over before you sign. I'm not so sure the real estate agent can even draft this contract for you (CA RE agent are only allowed to fill out pre-existing legal forms; and I don't think there is a legal form for your case). Of course, you and the owner can contract with each other; but if I'm the owner, I'd definitely engage a lawyer. You should too.
posted by curiousZ at 8:49 AM on December 8, 2010 [1 favorite]

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