Dale M. Servetnick Realtor, Salesperson Your Maryland 'Net Realtor! Long & Foster Real Estate, Inc.

Office: 800-275-6902 Direct: 301-893-6167 or 800-275-6902, Ext. 6167 Cell: 301-751-2932

Many people decide to rent a home instead of buying a home. This is a very personal decision, because only you know your circumstances -- You know why you want to (or need to) rent a home, You know whether or not your current job is only temporary and you will be transferred to another location, You know (usually before you even ask) whether or not your finances will allow you to buy a home. When you contact me as "YOUR Maryland Internet Realtor" to help you find a rental property, you should expect to discuss with me the factors that lead you to believe that you need to rent.

I will want to discuss the options with you, including purchasing INSTEAD of renting, because the advantages are enormous. I may even recommend, based on what you tell me, that you contact a loan officer to do a pre-qualification for a mortgage. You might be surprised by what you learn! The worst-case scenario would be that the loan officer will tell you that you cannot buy right now. They will ALSO tell you, though, what you should do to fix any problems that are preventing you from buying. That's free financial advice!

There are two ways to rent a home ... you can do a straight rental (either through ads in the newspaper or using the help of an experienced Realtor like me) OR you can try to find a home listed as a "Lease with Option to Purchase" or "Rent With Option to Buy."

Long & Foster uses a specific rental application for the properties that it lists. This application can also be used for many properties listed by other Real Estate Companies. Some companies, though, require their own applications.

When you contact me about rental properties, I will forward to you copies of the two pages of the Long & Foster application that will show you the information that will be needed. You can then fill out the applicaton and it with you when we meet to visit potential rental properties.

No matter how you reach the decision to rent a home, there are some steps that you should take ... and some things that you should know. I recommend that you begin your search for a rental property about 30 days before you will need to move.

• If you start looking later than that, you could end up in a situation where you cannot find a home in time or you will find out that the home you want to rent won't be available until later.

• If you start looking earlier than that, you might find that the home you want to rent is available NOW and the owner may not be willing to wait more than a few weeks for you to move in. That's understandable, because the owner still needs to make a monthly mortgage payment and pay all of the other expenses, whether or not someone is renting the property.

The main thing that I have found when working with potential renters is that, in this market, it is very, very difficult to have your application approved if you have credit problems. Most of the available listings that I come across every day specifically state that they will only consider applicants with "GOOD CREDIT." If you have a foreclosure and/or a bankruptcy on your credit report (especially if it is less than two years old), it will be almost impossible to get someone to consider you to rent their property right now.

That being said, I have found that there are ways around this problem that might work:

• The first thing that you absolutely must do is correct the problems with your credit report. That's one of the reasons that I will urge you to speak with a loan officer to do a pre-qualification. Fixing the problems will take time to accomplish and may not be easy, but in the long run, it will greatly improve your chances of renting (or even buying) a home in the future. This is something that ONLY YOU CAN DO. If someone offers to "repair your credit" for a fee, you should RUN, because they are probably trying to scam you. There is no such thing as a credit repair program.

• One option that you might consider for your immediate rental needs is to add someone to the application (and lease) who does have good credit (a parent, spouse, brother, sister, etc.).

• Another option would be for you to offer a double or triple security deposit. This would tell a prospective landlord or property manager that you are serious about your ability to fulfill your part of the lease.

Many Realtors do not "want to be bothered" with renters. Frankly, that's because there isn't a lot of money for them. As I mentioned above, I will counsel you on the benefits of buying a home and urge you to investigate the possibilities by speaking to a loan officer. If the results of the pre-qualification inquiry mean that you do need to rent, then I'll be glad to work with you on that. I enjoy working with those who must rent (and consider them a source of potential future clients when ... and if ... they decide to buy a house in the future).

If you need to rent a house or townhouse in any of the areas that I serve ... Anne Arundel County, Calvert County, Charles County, Prince George's County, or Saint Mary's County ... you can Contact Me today to discuss your needs. Once you let me know what you're looking for, I will send to you by E-Mail a list of the properties that are available so that you can review them on-line before we "hit the road." Because you are an Internet Home Buyer, I know based on information from the National Association of Realtors that you prefer to "pre-screen" properties. I am working hard to be "YOUR Maryland Internet Realtor" and will use all of the tools that I have available to help you.

Understanding "Rent With Option to Buy

Occasionally, someone will decide to sell their home without being in a hurry to complete a sale. This is usually someone who does not need to sell because they are moving to a new city because of a job transfer. In this situation, the owner may list the home for sale with a "Lease Option" or "Lease With Option to Purchase" ... more commonly known as "Rent With Option to Buy."

For Tenants/Buyers

Basically, the "Rent With Option to Buy" means that you (as the renter and potential buyer) will enter into a lease for the home for a predetermined period of time. You would then have the option (or the right) to purchase the house within the lease period. This is always a tricky decision to make.

For one thing, if you enter into such an agreement to lease a house for a year and then buy it at a price that was agreed-upon today and property values go down, you may not want to complete the deal because you would pay more for the house than it is worth.

Although the Lease Option is something to consider (if you can find someone who is willing to do it), it would not be my preferred way of buying a house. My advice to someone who must rent now and plans to buy later is to Contact Me today to discuss your needs. I will gladly help you find a house to rent now and, when you're ready, help you buy the home of your dreams.

For Landlords/Sellers

For the potential home seller, there are two very important things that should be taken into consideration before deciding on this option for selling a home:

Tax Consequences

The current tax law allows married homeowners to exclude up to $500,000 of the profit that they make on the sale of a house. This is true as long as the owner lived in the property for two out of the past five years ending on the date of sale. Single homeowners or those who use the "Married Filing Separately" option on their tax returns can only deduct up to $250,000 of the profit.

This means that in order to avoid paying capital gains tax on the profit from the sale, the owner must be able to sell the house within the time period mentioned above. Someone who enters into a lease option in July 2002 must sell the house by July 2005 in order to qualify for the capital gains exclusion. Remember that you must LIVE IN THE HOUSE for two out of the previous five years ending on the date of sale.

Simply put, this means that if you enter into a two-year "lease option" for your home in July 2002 and, at the end of the two year lease, the renter decides they do not want to buy the house, you will only have one year to sell the house to qualify for the exclusion.

Lease Option Terms

When you enter into a Lease Option, you must have a written document that spells out all of the terms and conditions under which you will rent the house. There are two items that are absolutely essential in the lease:

• Down Payment: In most jurisdictions, landlords are prohibited from receiving a security deposit that is more than one month's rent. In a Lease Option, though, you are entering into two separate agreements -- a lease for your home and a contract to purchase the home. In this situation, it should be possible for you to ask a potential purchaser to make an earnest money deposit that is separate from the security deposit, which would be placed in escrow for the purchase and sales agreement.
• Sales Price: You would normally negotiate the purchase price of the house at the time you enter into the Lease Option. This may mean that you will sell the property in one year (or two years), but at the price dictated by the housing market today. On the one hand, if property values rise, it will be a good deal for the tenant/purchaser, but you will lose some of the potential appreciation. On the other hand, if property values go down, the tenant could decide not to pay the contract price and the transaction may terminate. A possible good strategy to avoid this situation would be using a lease with a "right of first refusal" so that at the end of the lease term, the tenants would be given the absolite right to purchase the house, but at a price determined by the owner (based on the market conditions at the time). This is no guarantee that the sale will go through, because if the property values rise, the tenants may not be willing to pay the asking price.
• Credit for Rent Payments: This is sometimes the most difficult part of a Lease Option. Most owners/landlords would like to give the least amount of credit for rent payments and, naturally, the buyers/tenants would like to receive total credit for the rent payments they have made. This must be negotated at the beginning of the lease and absolutely should be in writing in the lease. There are many options ... ranging from full credit to partial credit, to no credit, and each party must be willing to negotiate until they reach a compromise.

The bottom line for sellers who are considering a Lease Option is that you must always remember that, until the tenants/buyers actually go to settlement and take ownership of the house, they are still your tenants. It is very important that you have a carefully-worded lease that spells out all of the rights and responsibilities for both parties.It is also important for you to make sure that you comply with the requirements (local, state and federal) regarding lead paint disclosures, licencing and occupancy certificates.

If you own a home and are interested in considering a lease option for a potential sale, you can Contact Me today to discuss your needs. I will help you determine whether or not this is a good idea for you.

Please don't hesitate to contact me with any questions that you may have about Real Estate in Maryland. I will gladly tell you how I work as "YOUR Maryland Internet Realtor."