All Forum Posts by: Account Closed

I think it's a mistake.

If this is a $200,000 home and you require 3.5% down, that's $7,000.

Tenant lives there for two years and fails to buy. He also fails to make two payments and you have to evict ($3,000+). Once you get the home back, you discover he tore out your carpet and replaced it with Pergo flooring that was installed improperly and has been damaged by water and animals ($6,000). The entire house reeks of dogs and cats, walls need to be painted $1,500), a couple doors and windows have to be replaced ($2,000), the sprinkler system is broke and the yard is full of weeds and dirt ($2,000). And the house will sit empty for at least two months while you try to get it back in shape ($3,000)

Without even trying, this occupant has cost you $18,000 in unpaid rent, vacancy, cleaning and repairs. The scenario I'm painting is not exaggerated. I haven't seen many rent-to-own situations personally but the ones I have seen and the ones I've heard about have a strong tendency to go this way. Also, the tenant will most likely bail when the market takes a turn for the worse so you'll have a hard time getting top dollar for it after they leave and you fix it up. 

I would only consider a rent-to-own with a significant, non-refundable option of 10%. Even then, I would make the entire deal contingent on them maintaining the home in good condition and subject to your inspections.

I don't think you have the experience and knowledge necessary to ensure you're protected so I recommend you reject the offer.

A portion of each months rent goes toward down payment or purchase price of the property. There are many other things that can be negotiated like what portion, how long of a term, who is responsible for repairs, taxes, etc. You do want to have the agreement in writing and make sure landlord has free and clear title and is the sole owner has legal right to make the agreement. The renter/buyer needs to keep all his rent payments showing potentially a bank that payments were made on time and how much has actually gone toward purchase.

Rather than type for 15 minutes, I'll share this article.

Rent-to-own or lease-options fail over 80% of the time. The reason buyers use rent-to-own is because they can't qualify with a bank. They can't qualify with a bank because they are high risk. Why would any seller want to lock in a contract with someone that's high risk?

If you are a buyer and can get someone to take the risk, good on you. If you are a seller and someone is trying to talk you into a rent-to-own, walk away. Or...figure out how to mitigate the risk. There are ways to mitigate the risk and turn a rent-to-own into a real profit center but you have to know what you're doing and have a solid contract.