CRYSTAL LAKE – After renting a home in Crystal Lake for three years, Angel Georgiou worried home ownership was out of reach.
The 56-year-old mother of two could afford to pay a mortgage, but with a commission-based sales job, she couldn’t get a home loan. Eager to keep her daughters – Anna, 13, and Patricia, 8 – in Crystal Lake schools and sports programs, she had spent nine months looking for another, larger home to rent.
“I really wanted to stay in Crystal Lake to provide stability for my children and to stay involved with the community,” said Georgiou, who helps out at her daughters’ schools and a local girls softball league. “The beauty is I found the house I wanted. I’m not finding a house I hope I want to buy, now I found a house I want to buy that I can rent. I have a way to get in.”
Eventually, Georgiou found a house to rent with an option to buy through a company called Hyperion Homes LLC. The Chicago-based company aims to provide “a new path to homeownership” for those who can’t obtain a mortgage, said Sharon Park, a principal at Hyperion Homes.
The real estate investment company, which has about 20 employees, started offering a lease with purchase option program in November 2012.
Through the program, qualified applicants work with brokers to find a house they would like to buy. The house must also meet Hyperion’s investment criteria. Hyperion then buys the house, in cash, and leases it to the resident with an option to purchase at a set price. About 53 percent of the people who fill out Hyperion’s online pre-application are ultimately approved to participate in the program.
The applicant then agrees to a one-year lease and has to come up with a security deposit equal to two months rent. The resident can get financing to buy the home at a 5 percent premium over the initial cost of the home. Hyperion returns the security deposit, which can be used to help with a down payment. Hyperion doesn’t provide financing.
The resident can also choose to continue to lease on a yearly basis, with rent increasing 3.75 percent a year, for up to five years.
Likewise, the purchase price increases 5 percent annually for up to five years.
The resident also can decide to not to buy the house. In this case, the security deposit would be returned minus any expenses for repairs.
“People who have steady jobs and good sources of income just cannot get a mortgage so they are effectively forced to get in the rental market,” Park said. “We designed this program specifically because – it sounds very cliché – but we wanted to develop a new path toward homeownership given how difficult the mortgage markets are today.”
Most of the people in Hyperion’s lease program have had at least one credit problem. Hyperion plans to offer a credit counseling program, through a company called Credibility, to help participants improve their credit and their chances of getting a mortgage to buy the property, Park said.
A decade ago, Michael Rein wouldn’t have touched any kind of rent-to-own deal because they were often fraught with complications. But with so many people unable to secure traditional financing, things have changed.
“I didn’t pay much attention to rent-to-buy because it was usually a disaster,” said Rein, managing broker of Century 21 Sketchbook in Cary and Century 21 American Sketchbook in Lake Zurich. “However, Hyperion seems to have a really good program.”
Hyperion’s program doesn’t make sense for all home buyers, said Mark Saladin, an attorney with experience in real estate law and a partner with Crystal Lake law firm Zanck, Coen, Wright & Saladin.
“People need to go into this with open eyes. There is a cost for this convenience,” he said. “However, this appears to be an option for those with credit issues.”
Hyperion’s 5 percent markup of the purchase price after one year could put the prospective buyer at a disadvantage if the actual price of the home doesn’t increase that much or falls during that time, Saladin said.
“With any program, the resident has to weigh the financial obligations and everything needs to be in writing,” he said. “And I would definitely recommend reviewing all the documents ahead of time with an attorney.”
For Georgiou and her daughters, the program has worked so far.
Hyperion purchased the house at 62 Crystal Ridge Drive in April for $210,000, according to Nunda Township property records. The family moved into the four-bedroom home a month later with their Jack Russell terrier, AJ. Anna painted her room blue.
“I love the new house,” Anna said. “This way I can stay in the same school and with the same friends.”
Georgiou pays $2,000 a month in rent. Unlike other rent-to-own programs, none of that rent goes toward a down payment. Hyperion sets rental rates near the market average, but it also builds in “a small profit,” said Hyperion principal Drew Friestedt. The company also profits on the markup when it sells a home.
Zillow.com’s estimated purchase price for the home was $217,047; its estimated rent was $1,897.
Rein called Hyperion’s rents “slightly premium.” However, he said the company’s program could benefit people hurt by the real estate market crash and financial crisis.
“It makes sense for people with good jobs who are re-establishing credit,” he said.
Georgiou, who started a new job this week, wants to get a loan to purchase the home by the end of the year.
So far, one person has successfully purchased a home through Hyperion’s lease program since it began last November, Park said.
For renters, securing financing could remain a major obstacle to purchasing a home through Hyperion’s program.
“It’s still early,” Park said. “We think, hopefully, in the next nine to 12 months we’ll start seeing more residents purchase homes from us. But it’s really too soon to tell in terms of residents ability to qualify for financing.”
Hyperion has 24 homes closed or under contract in McHenry County and 153 homes in the Chicago suburbs. Going forward, the company hopes to close on 50 to 75 homes per month.
“We think the model makes a lot of sense,” Park said. “So we’re hoping that our volume in terms of transactions continues to grow as we as a company grow and as more people find out about the program.”
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What: A Chicago-based real estate investment firm that offers a lease with purchase right program aimed at providing a new path to homeownership for people who have struggled to get a mortgage in the wake of the financial crisis.
Where: 2 N. Riverside Plaza, Ste. 1250, Chicago
Information: Call 877-234-5155 or visit www.hyperionhomes.com