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Is rent to own a good option?

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February 24 2011 - Conway
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Answers (21)

For some, yes, for some, no, every contract and situation is different. 
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February 23
I appreciate your opinions wetdawgs (I know you have much "forum experience") and I would never wish to be at odds with you so I respectfully offer my points below along with my appauligies...  

The fact is most 1 post consumers are not even aware of the "thumbs up" button for those agents who take the time to give advise or answer questions (it would be nice if Zillow notified them that they can be "thanked" by a simply clicking that tiny thumb thats very hard to see that folks without 50k posts are just unaware of most the time). I know its very little for the time some of us spend trying to help folks in a business we love, live and breath, but it feels nice to be thanked once in awhile.

The poster in this thread did not say ANYTHING about a potential "rent to own" being on the market "for sale", most the time when a house is listed with a Realtor for sale it would be all but impossible to "rent to own it" because the Realtor representing the seller would be advocating against it in most cases.

Having said that... There are times when it is justified and can work for all parties as well as to all parties benefit and contrary to what I see most people advising, a rent to own situation can indeed benefit a seller at times (with or without initial "up front" non-refundable deposit)... it would require me to write a book to explain the vast number of ways this to be true but I will take the time to give a few of the obvious reasons:

Tax advantages
Better quality of tenant
Higher rent
Higher sale price

 
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February 23
Profile picture for wetdawgs
Thumbs down Mr Crane!   Rather self serving to ask for "thumbs up" on every post.

People wanting rent to own tend to do so  because their credit scores aren't so great and they can't qualify for a loan.     Adding extra rent each month is typical, but without a down payment I can't think of any owner who'd consider rent to own, taking their home off the market for a pittance.   Of course, the agent thinking creatively for several per cent commission is happy to get the commission.    Perhaps such dreams work in your neighborhood, but they wouldn't in mine.
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February 19
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Rent to own is only good for sellers who keep the deposit money when buyers don't close.
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February 19
rent to own can by beneficial to the buyer and/or the seller!

You should absolutely enlist a good Realtor to facilitate this transaction. It should consist of a purchase and sale agreement linked to a lease agreement. obtaining a 5% or more non-refundable down payment is in all likelihood fantasy because the tenant probably does not have 1st, last, security PLUS 5% down in their pocket (lets be real here!)

possible options are as wide and as vast as the Realtors experience and mind allows... I will give one viable option that works well (agree on a purchase price, agree on a time frame for that purchase, agree on a monthly rent that is on the high side, agree that IF the renter proceeds with the purchase by a given date a portion of the rent collected over that 2,3,4 year period is applied to their down payment on the home, if the renter does not proceed with the purchase for any reasons that portion of the monthly rent is lost forever.)  

hope this gives you some food for thought... click thumbs up if i helped>>> best wishes!
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February 19
So just curious what anyone thinks about this on the rent to own vein. What if the buyer puts up a non-refundable deposit and then when it comes time to exercise their option to buy the house and they obtain financing but the house does not appraise for the purchase price?
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February 19
Rent to own is a great solution to the common problem that many potential borrowers are experiencing. You MUST enter into an agreement with an HONEST and EXPERIENCED professional to make this work. I give all my rent to own buyers a minimum of 3 to 5 years to buy the house from me. It is true that the down payment is not refundable if the option is not excercised. I always offer monetary incentive to my buyers in the form of one of the following: a low down payment, below market rent, or a discounted purchase price. These are offered differently to meet the needs of both buyer and seller. There are some companies that will try and charge you a maximum rate for all of the above on a shorter option period. Avoid this at all costs!

I recently put together a rent to own transaction where the buyer got a home for 30% below market rent, on a 7 year option period, for a purchase price equal to todays current fair market value (the area hasen't seen any real appreciation). I offered this for a 5% non-refundable down payment (the option money is creditied toward the purchase price). It is true that these are difficult to find because it is a very specialized niche and not everyone is good at what they do.

I believe in win-win situations by offering buyer and seller a good deal which is why I sell my rent to own homes in under 30 days.

 

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December 19 2013
Rent to own has the optionee (aka renter) taking on risks(known and unknown) that are not necessary to take.  Unless we are in a period of rising home prices I dont see the benefit to the optionee of taking the risks. I have gotten calls from home buyers over the years that have had bad experiences. Real estate investors/house flippers love these for good reasons. One should get informed on the full legal ramifications of these instruments before getting involved with them.  Enough said.
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March 08 2011
As the other advisors mentioned, it can be tricky as you are relying on the seller and your future financing to behave predictably.  To add to the previous list of what ifs: what if the home appreciates and the seller reneges?

Another possibility is to just ask the landlord if they would be interested in selling when you are ready... and then simply negotiate at that point.  Or negotiate a low option payment that you could walk away from without hard feelings if it didn't work out.  

Also, if you are serious about the home or are putting down a non-trivial option payment, hire an attorney experienced in these deals to set up the deal to help offset some of the risks.

Overall, only rent to own if you *love* the house and feel a strong desire to own it.  If it is just an intellectual decision like you don't want to throw away money on renting, then don't bother.  Just focus on the many positive aspects of renting and call it good.

Good luck!

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February 26 2011

Ren to own is beneficial to the seller not to the buyer.  Begin a relationship with a Realtor for personal counseling... 

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February 26 2011
wow the clueless advising the lost!

1.what if the owner defaults to his bank? the home gets foreclosed and your deal is ended.
2. What if the owner owes more than the current value of the home? you will never be able to buy it at the end of the rent to own period.
3. What if the value drops? you won't be able to get an appraisal sufficient to buy it, and you may not want to buy it anyways.
4. what if your credit / job history never gets enough better to buy? after all, with interest rates at near record lows, those would be the only reasons to simply not get a loan today.
5. what if rates go up? will you still want to buy?

In short, rent to own is almost always the worst idea possible. It is where clueless poor credit buyers meet unrealistic sellers, and think they have made a deal. usually it ends poorly, often in lawsuits.

Nevertheless clueless agents keep recommending it. go figure.
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February 26 2011
In this economic climate, it is a very good option.  Assuming the owner-financing terms are favorable, you get so much more return for your money.  Just make sure that you definitely want to live there!
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February 25 2011
It is a good option is you are absolutely sure you will be buying the property because usually the owner/seller will ask for a large upfront non-refundable deposit in the event you decide not to buy later which of course you will lose when you walk away.
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February 25 2011
Renting is a good option, at least until you are in a position to own. Rent / lease to own can become very treacherous waters to thread.

Happy funding, Rudi
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February 25 2011
Good questions and many good answers below.  The reason most folks need to do a lease purchase is bc of their credit.  Have to be aware many owners will charge a higher interest rate.  Also, many times they will want more non-refundable money down up front.  This is in case you do not proceed with the purchase, and the owner has to put in new flooring, paint and/or make repairs.  Hope the best for you.  Best Regards.

Dean Bright
ReMax Associates Athens
Athens, GA
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February 25 2011
It is only a good option if you are absolutely certain of the outcome on your exit strategy (i.e. obtaining traditional financing).  Consult with a mortgage professional on how to structure the transaction BEFORE you enter into it.  99.9% of the time the lease purchase contract is written so there is no benefit for the buyer in terms of getting subsequent financing.

And, most of the time it has nothing to do with the seller trying to take advantage of the buyer as much as the fact the lending guidelines are pretty restrictive on what they will accept as down payment. Jim's example is pretty good, but take it a step further:  If the seller agrees to allow 100% of your rent payment of $1000 towards the down payment, but the fair market rent is only $900...the net result is (from a lending perspective) you have made NO down payment no matter how long you live in the home.
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February 25 2011
It is an excellent option if you can find a seller willing to cooperate.
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February 25 2011
In general with the rent to own option you will most likely pay more than if you work on your credit to get yourself to qualify for a traditional mortgage. The owner of the home willing to do a rent to own is charging you a hefty premium to do so in most cases. That being said rent to own is a great deal for the owner of the property and you have to review the terms of the rent to own contract with a real estate attorney.
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February 25 2011

Depends on the terms. Usually, it is more benifical to a renter that could not afford/qualify for a home currently. But have circumstances that will change that in the future.

I tend to be skeptical of anything complex.

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February 24 2011
It totally depends on the terms that are offered.  Most sellers who do this will apply very little of your rent payment to the down payment on the home when you do eventually buy.  For instance, on a $1000 a month rent payment, a seller may offer to credit $50 towards the purchase of the home.  If you have rented for a year, then you have a total of $600 towards your down payment - which isn't much considering you have given them $12,000 over the course of the year.  Also you usually negotiate the price of the home up front, and if the value drops by the time you are ready to close - you are stuck with an over priced home.  If the seller is offering good terms - like applying 1/2 of you monthly payment towards the purchase - I don't see anything wrong with it - as long as you really love the house and are not just "settling" for the only home that offers a Rent-to-Own option.
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February 24 2011
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I have been renting an apt for the past 4 years while in college.  I have student loan debt and not that high of a salary. I hate the thought of spending 660 a month of rent for a lot more years.  Is rent to own a good option?

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February 24 2011
 
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