As the market sours and potential first-time buyers become more
indecisive about whether it makes sense to plunk down money for a
purchase, some developers are allowing them to hold off on the big
decision.
Those developers, who are predominantly in Brooklyn,
are trying to woo would-be buyers with deals that allow them to rent a
unit in a condo building while at the same time putting their monthly
rent checks toward a down payment.
The so-called “rent-to-own”
programs, which started popping up in the last few months, collect the
rent money in escrow until the end of the lease period.
Early
last month, the real estate Web site Curbed.com reported that Toll
Brothers was offering units at the first tower in their Williamsburg
waterfront development Northside Piers on a rent-to-own basis. A week
later, the site reported that another Williamsburg condo, the Decora on
North 10th Street, was doing the same.
It turns out that they are not the only ones.
In
Fort Greene, the Clarett Group is mulling doing the same thing for its
condo, the Forté, where sales have been sluggish.
“Because of the overall economic climate, potential buyers are having
trouble making decisions about whether to buy now,” said David Von
Spreckelsen, Toll Brothers’ vice president.
“And even once
they do decide, they are often having difficulty lining up mortgages
that suit them,” he added. “So, offering a rent-to-own scenario allows
them to get into our building now, but allows them to make the ultimate
decision later — and hopefully then, much of the confusion in the
mortgage market will have abated.
“We are confident that once
these potential buyers are living at Northside Piers, they will want to
stay, and will become buyers,” he said.
Von Spreckelsen said
that at Northside Piers, potential buyers sign a one-year lease, but
must be prequalified by a mortgage company to purchase the unit they
will be leasing. If the renter decides they want to purchase, a portion
of the rent they’ve been paying will go to a down payment on the condo.
The cut that goes toward the down payment depends on how quickly the tenant commits to buying.
The faster he or she decides, the more rent the developer diverts to the down payment, Von Spreckelsen explained.
The
fine print on an advertisement for a rent-to-own unit at Northside
Piers noted that 100 percent of the rent will go to closing costs if
the tenant commits to buying the unit within six months, while 50
percent of the rent will go to toward closing costs if he or she
decides to buy six to nine months after a lease is signed.
At
the Decora, the rent-to-own program involves a 14-month lease,
according to Justin Daly, the rental director for the Developers Group,
the brokerage that represents the building.
Daly
said the math works out so that rent on a Decora unit over 14 months
equals 10 percent of the condo price — and all of the rent paid goes
toward the down payment.
Decora’s
units start at $530,000, which means that a tenant who opts into the
rent-to-own program at the building will have paid $53,000 over
14 months.
“Most
people looking to do this want to buy,” said Daly. “Otherwise, you’re
going to waste your money on a very high rent. It’s an installment
plan, and we think it appeals to people just out of grad or medical
school who don’t have enough savings to buy otherwise.”
Elsewhere
in Brooklyn, the Clarett Group is considering instating a rent-to-own
program at the Forté, a 108-unit condominium building that is about
one-third sold.
“It’s interesting, because it’s like a forced savings,” said David Perry, the Clarett Group’s director of sales.
Perry
said Clarett is entertaining a program that would involve a renter
deciding after six months whether to exercise their option to buy. From
a developer’s perspective, he said, there’s not much risk involved with
the program.
“The only potential risk I see is getting someone
in the building who is basically renting there and is not a real
purchaser,” said Perry. “If that happens, you have to clean up the unit
after they vacate and make it new again. But on the other hand, the
rent they’ve paid can help pay for those costs.”