Rent to own good or bad?

Question

Would this be a good way to get started or bad??

Christopher Phillips · Answer

@Silviano Olivares

As a buyer, no. For an investor, yes.

Rent to own isn't exactly what it sounds like. It's a lease with an option to buy. So, it's just a lease. That means you don't actually own anything unless you execute the option and later buy the house...

Usually the option has to be executed within 2-3 years. It can usually be renewed, but most people never buy the house. If you don't buy the house, you never get that option money back.

Also, if you do use the option, you still have to apply for a mortgage. For renters with bad credit or no savings, 2-3 years usually isn't long enough to get the credit and money together.

This is why it's usually not good for buyers: The renter pays higher than average rent. That difference may or may not go towards the purchase of the house (depends on the contract). In most cases, it doesn't. You also don't get the difference back if you eventually decide not to buy and move out. That means the renter is out the non-refundable deposit and the extra rent money. That's money the person could have been saving to buy a house.

Here's the other problem. Commercial operations also add an annual maintenance charge to the final purchase price of around 8% for year. So, after two years, the final adjusted purchase price will actually be higher than if you just bought a house on the market. In a really hot market, that might be okay. But in a market that is flat or falling in price, you now have a purchase price that doesn't make any sense. So, the average person just keeps renting or moves out.

Christopher Phillips · Answer

@Silviano Olivares

I agree with @Anthony Kelley that we're not sure what you're looking to do...

Are you thinking about buying something through rent to own or are you looking to put a renter in a property with a lease option?

Account Closed · Answer

I have yet to find a good "rent to own" deal.  I've seen a few good "seller finance" deals.

What scares the heck out of me are folks who advertise they are willing to sell their home for $5,000 down provided the purchaser agrees to do something like carpet the front room (I've seen this).  What if I don't want carpet?  If it's seller financed, then what difference does it make to the seller?  It shouldn't matter more to the seller than it does to the bank.  I think this may lead to legal issues and it's why I stay away from these types of deals.

There are a couple of companies that (from what I see) buy distressed properties, then advertise them as "rent to own".  We're talking about houses that need some really extensive rehab.  Essentially, they will rent them to you for the first year and if you have a good payment history, AND MAKE THEM HABITABLE AT YOUR EXPENSE, then they will apply HALF of your first year's payments toward ownership and move on to selling you the house.  Gee, what a deal!  Let me fix up your house at my expense LOL.

Seller finance when it makes sense - yes.  Rent to own...not from an investor's perspective (unless you're the seller...and intending to make it your long term home).

Silviano Olivares · Answer

I want to purchase a home I'm a first time buyer. Would it be a good idea to rent to own? Is this a good way to purchase a home? Thank you

Jeff B. · Answer

There can be issues with RTO document(s), so be sure you understand these issues AND get legal advise on the documents themselves

Matthew Rogers · Answer

This questions is hard to answer because we don't have any context. It really comes down to your individual goals. What are you trying to accomplish? Do you want to become a real estate investor or just purchase a home to live in. You need to ask yourself what your short term and long term plans are.

Once you've set your goals, real estate makes it very easy to work backwards to achieve them. Let's say you want to become a real-estate investor and your goal is to own 10 units in 5 years; now you know to achieve this goal you must buy 2 units per year. Now you can ask yourself will renting to own a property set me on track to reach my goal.

Most of the time renting to own a property implies you have the option to purchase the property after your lease. But it could also mean you sign a contract to have the owner carry the loan from the start. This could be a good option if you don't have any money for a down payment, bad credit or a shaky employment history. However in most cases you'll end up paying more for this property than it's worth because your options of inventory are limited to sellers willing to carry the loan. So it may make sense in your situation but if you can qualify for a normal loan, you're most likely better off going that route.

You should pick up a couple real estate books and checkout this free kindle book Here. The more information you take in about all things real estate the more you'll start to understand. Be patient and take the time to learn before jumping into something you don't fully understand.

Anthony Kelley · Answer

your not giving much details to go on here. I am looking into "selling" renting my place as a rent to own. my research says it can be a good thing, but you should seek a real estate lawyer to write up the contract.

Rent to own good or bad?

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