Question Details

R. Bruce Dur…, Real Estate Pro in Apple Valley, MN

It seems that Rent to Own is becoming attractive for strapped owners. Is this viable?

Asked by R. Bruce Durham, Apple Valley, MN Wed May 21, 2008

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Frankly, if the objective is to take money away from people, I'd have to say, yes, it works great. It's also good at selling something to someone who probably shouldn't be buying it in the first place. And it clouds any ability for the buyer to determine the fair market value of what they are buying. Good for sellers, bad for buyers, any way you look at it. Rationalizing that it's helping people out who need it doesn't work, it's taking advantage of people who shouldn't be taken advantage.

Probably not the type of answer you were looking for from a realtor though, eh?

Be good,

1 vote Thank Flag Link Wed May 21, 2008
Rent to Own (or what I'd like to call Lease Purchase) could be a viable option for strapped owners. It is a way to unload a property that is not moving. It takes the maintenance worries out of the seller. It guarantees the rent. There is no fee or commission involved, if handled directly between seller/owner and buyer/tenant. It gives the seller a good price for the property, which is very good in today's declining home values. And then there are the tax benefits.

Lease Purchase, from what I've read and learned, could be a powerful tool. It is more of an investment strategy, allowing the investor (the master tenant) CONTROL rather than outright purchase of the home or a straight sale. By its definition or description, a lease purchase is an agreement where the seller/owner and buyer/tenant agree to lease the property with the right to buy it at a price they agree upon up front. And this where the buyer/tenant gets his/her benefits: buying a property at today's reduced price. And best of all the buyer/tenant puts out nominal move-in costs; doesn't have to qualify for a loan, which now could be between 10-20 percent of the home purchase; doesn't get hooked on to a 30 year mortgage or longer; and possiblly even generate positive cash flow, either from the upfront cost, monthly rent or back end when the property is sold and turned over to the new owner.
0 votes Thank Flag Link Thu May 22, 2008
At one point, as a buyer - i considered this option.
I had just spent a good deal of time paying off considerable creditcard debt, and had very little cash up front for a down payment.
Very few people really warned me about this process - and it was only after i did my own research that i realized it was kind of a fool's game.
I would suggest that your best option would be to inform your clients of the possible downfalls, be upfront and honest with them about the pros and cons - and in the end you'll have a client who is better informed, and thinks better of you for being up front with them about it.
0 votes Thank Flag Link Thu May 22, 2008
I have to agree with Jeffrey, but with added information. Some of the problems for Owner financing as well as Lease/Purchase arrangements:
For Sellers: If the buyer defaults, as is likely since they can't qualify to pay a conventional loan, the seller has to go through the process of eviction and then spend money repairing possible damage to the property left by the angry buyers.
With a lease purchase that has no closing date, the seller is stuck if he needs to unload the property completely at a future date, but the buyer has upheld his end of the agreement.
For Buyers:
The seller could default on his mortgage leaving the buyer homeless and without recourse.
If the buyer defaults, (in some arrangements this can be being 10 days late with one payment) the seller can evict them, keep all payments and downpayment, and sell the house to another.
Some unscrupulous investors make their living this way, taking advantage of buyer after buyer for the same property.
In my opinion this is not something a reputable Realtor would recommend to a buyer or seller without making sure everyone involved has a complete understanding of all possible outcomes.
0 votes Thank Flag Link Thu May 22, 2008
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