Profile picture for csnyc727

Can anyone explain rent to own and if it's worth it?

Are their any benefits? What's the catch?
  • December 18 2013 - US
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Answers (4)

I agree with Tim.  Too many variables which cannot be controlled.  Best to avoid and wait until you can finance in a traditional manner.
  • December 18 2013
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Profile picture for Outer Banks N C
In the scenario below the loan might be for $92,600 but the purchase price would be $100,000 so the appraisal must come in for that amount. If the buyer decides they don't want the house, or the lender won't give them a loan or the home does not appraise for $100k then the buyer (renter) defaults and they would lose $7,400 and be back on the street looking for a place to live. Rent to own is a horrible idea if you can even find one. Most renters are renters because they can't get a loan and to make a rent to own work you must get a loan. And in the scenario below there will also be closing costs that can add up to another couple thousand dollars the renter would need to come up with. Not a great deal and something best avoided.


tim
  • December 18 2013
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A buyer can control a property with usually just a small non-refundable deposit given to the seller.  This can be a win/win situation for all parties involved if it is structured properly.  All parties should consult an attorney to review the contract. 

There are many different ways to structure this, but usually the buyer is given a credit each month off the purchase price.  Here is an easy example:

Purchase price: $100,000
Down payment: $5000

The non-refundable down payment goes toward the purchase price, so now the price is $95,000.

The buyer makes $1200 monthly payments to the seller and receives a $200 credit each month, which goes toward the purchase price.  So at the end of one year, the buyer has $2400 in credits, which makes the new sale price $92,600. The buyer has the option to apply for a loan for this amount to purchase the price or walk away and lose their credits and down payment. 

"Own nothing, control everything."   - John D. Rockefeller

Good luck!
 
  • December 18 2013
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Profile picture for wetdawgs
Rent to own is often presented as a way to buy when someone isn't ready to buy, so you should be aware of the realities:

1.  There are almost no houses available for "rent to own" so finding your dream house is not likely.
2.  A substantial down payment is required, often 10% to 30%.  This will not be refunded if you cannot obtain financing for the agreed upon price at the agreed upon date.
3.  Monthly rent is above market rent, and only the difference goes towards purchase.   This is also lost if you are unable to get financing.

In general, rent to own favors the seller.  Only a tiny percentage of these become owned, and the potential purchaser tends to lose a lot of money.   

  • December 18 2013
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