MIAMI, FL - Believing that paying rent is as good as throwing money away, Monica Gomez never saw the sense of leasing a place to live. But with condo prices still in a tailspin, the 26-year-old attorney, who is desperate to move to Miami's Brickell Avenue area, said it doesn't make much sense to buy right now, either.
The condo crash that has South Florida developers neck deep in unsold units is actually letting Gomez and others have it both ways.
With some of the region's swankiest projects honeycombed with empty units, developers are increasingly using lease-to-own programs as a way of attracting wary buyers and eager renters. Some are offering terms unheard of in normal markets.
Many developers, including the mega-builder The Related Group, are offering lease-to-own options that credit 12 months worth of rent payments toward a down payment or closing costs. Taking advantage of such options generally carries no extra cost.
An even bigger plus: Renters can negotiate a sales price at the end of the lease, allowing them to wait out another year of price fluctuations as they save for a down payment.
The demand for lease-to-own options appears to be robust. Scott Greenwald, developer of The Lexi in North Bay Village, said 26 new tenants have signed lease-to-own agreements since he rolled out the program three months ago. The option allows tenants to lock in current market prices on their condos in the event prices go up over 12 months. But if prices fall, they can renegotiate, said Greenwald.
''People who end up closing get a free year's worth of living. We're getting a lot of younger people doing the lease-to-own,'' Greenwald said.
The proliferation of lease-to-own options represents the latest survival strategy for developers whose projects came to market just as prices crashed and credit markets dried up, making it nearly impossible for potential condo buyers to obtain financing.
Developers currently hold about 10,000 new units in the greater downtown Miami area alone, not to mention the thousands of new condos and condo conversions built throughout the rest of Miami-Dade and Broward counties.
While renting units is a significant departure from business models devised in better days, lease-to-own agreements are a critical, if temporary, bridge linking developers and buyers in the credit drought, according to Jonathan Mann, a real estate agent with Grove Town Properties. He specializes in leasing developer-owned condos.
Developers can bring life and vibrancy to a project by populating it with leasing residents, making it more attractive to other buyers. They can also generate cash flow to cover their costs as they wait for the credit market to improve and buyers to come, Mann said. ''Renters get to test drive buildings and save up for a down payment. They don't have to worry about units going into foreclosure and they get a high-end, luxury building with low move-in cost. It's a no-brainer,'' Mann said.
Greenwald stressed that the programs would not last forever. He anticipates offering the options for another year or two at a maximum - or until the credit markets improve.
Marc Billings, 37, president of a growing telecommunications company based in downtown Miami, said he moved into a penthouse at The Plaza precisely because he had the option to buy it.
Four months into his lease, he's fallen in love with the Brickell area building. It's steps from shops and restaurants at Mary Brickell Village and the Metromover, which he rides to his downtown office. He said he's already negotiating a sales price.
''It takes a renter and makes them a buyer,'' said Billings. ''It is market specific. It's not something you can get all the time.''
Corporate lease-to-own options were the rage in South Florida following the last condo slump in the 1980s, when developers and individual investors were desperate to shed properties along the Brickell corridor. Contract terms in those rocky times were similarly liberal.
In stable markets, though, lease-to-own options are typically used by individual owners as a way to unload hard-to-sell properties. They usually require a nonrefundable down payment and the sale price is fixed before the option is exercised. Sometimes only a percentage of the rent is credited toward the down payment. If renters back out, they lose their deposits.
Leonard Elias, Miami-Dade County's consumer advocate, cautioned lease-to-own renters to read the terms of their contracts closely to make sure they fully understand what they're getting into.
Gomez, the lawyer, is still searching for what she hopes will be her future home. At this point she has encountered some rent-to-own deals in the Brickell area that require a down payment, but she is holding out for more flexible options.
She is looking for a condo in the $300,000 range to share with her fiancé. The two-bedroom units she has already seen rent for about $1,800 a month, meaning at the end of the lease, she will have built a $21,600 credit, roughly 7 percent of the unit's cost, plus anything else she is able to save for a down payment.
Her only concern is being forced to move if the developer sells the unit. Often developer lease agreements contain a relocation clause and provisions that help with moving expenses if the unit is sold. Sean Bonselaar, rental division director of Condo Vultures, said it is indeed a risk, but most developers are moving tenants into similar or better units.
The most significant downside for tenants banking on the option to buy, he said, is that there is no guarantee renters will qualify for a loan at the time the lease expires.
''Initially, developers only qualify you to rent, so there is no guarantee you'll be able to purchase it. They're only saying, we're going to give you a window of opportunity, but it is a great opportunity,'' Bonselaar said.
Source: MiamiHerald.com