Rent vs Buy in Cleveland>Question Details

user8441508, Real Estate Pro in San Mateo, CA

What are the advantages/disadvantages of rent-to-own properties? Please respond on here.

Asked by user8441508, San Mateo, CA Wed Sep 11, 2013

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I tell those that ask that It's similar to renting a sofa from a rent-to-own furniture store with a large down payment. The store has a very limited amount of styles and colors to choose from. You're stuck with a sofa you may not really love, but it's all you can get at the moment. It's an act of last resort or desperation. Limited inventory and the furniture store wins.

It's best to save and buy it the normal way either by reasonable/normal financing or cash.

Wait until you're in a solid situation to buy a home. Save and build/repair credit. It's best to wait 6 months to two years to get into a home that you will like and can afford the right way.

The down payment for a rent-to-own is often equal or even higher than going FHA with 3.5% down.

The default and risk possibility are higher.

One way that risk is reduced and it may actually make sense is with a family member. With proper legal contracts in place, it may be a way to transfer property from one family member to another legally when the buyer is not in a position to purchase. The home is already loved, the deal is not for inflated profit, just a practical transfer.

If you wouldn't rent-to-own something as simple as a sofa, you should not consider doing the same with a .... house.

Cecilia Sherrard
Web Reference:
2 votes Thank Flag Link Wed Sep 11, 2013
As the home owner the advantage is piles and piles and piles and piles of cash.
To the will get to see your wealth move from your pocket to theirs.
In reality, there are situations where rent-to-own or lease/options can be a real solution to obstacles. Thiese must be evaluated individually.
They rarely, perhaps are Never a good solution for those with bad credit.
They an be a exceptional solution for those who have been denied credit.
And let's not forget those who successully completed a strategic default.
There is real opportunity for real estate professionals to provide such solutons, however, you WILL need to have a very experienced attorney who understands this business goal and can explain the real objective to you.
To attempt an actionable response to your question would create ommissions that could prove a great liability. Those who really must ask the question you posted should stay away from this market segment. Not only will you be exposed to great hazard, it is higly likely you will not get paid. After all, this is a business, not a hobby.

Best of success,
Annette Lawrence, Broker/Associate
Remax Realtec Group
Palm Harbor, FL
3 votes Thank Flag Link Wed Sep 11, 2013
I concur with Annette. Many of us have been in the industry for years and know the potential pros and cons as she has pointed out. If you were to perform your own research you would know without a doubt the significant impact of rent-to-own deals regarding a potential buyer with poor credit.

An investor of these deals, statistically, do very well and they count on the potential buyer breaching the contract...which most do. Unfortunately, they may specifically target folks with horrible credit knowing these folks will more than likely default again on a rent-to-own deal. The profit, large cash down payments from a potential buyer. Some contracts can be as strict as missing a payment by one day, breach, and that's it...the buyer's money is gone.
2 votes Thank Flag Link Wed Sep 11, 2013
Jim, thank you for that always-overlooked point! The Rent Credit!!

Cecilia, I have been wanting to write that sofa analogy for a year now, you have done it so brilliantly, thank you!

Thumbs Up to J & Annette!
1 vote Thank Flag Link Wed Sep 11, 2013
The advantage to the buyer is if the price of the property goes above the agreed upon purchase price at the end of the lease period they win. In every other senario they lose.

By the way that rent credit. At the time of purchase the appraiser has to establish fair market rent. If the buyer has not been paying over fair market rent for the property there is no "rent credit". This is to comply with the federal regs that do not allow the seller to contribute to the buyers down payment.
1 vote Thank Flag Link Wed Sep 11, 2013
Good morning Kenan Jue,

Rent To Own is a better deal for the Seller than it would ever be for a potential Buyer.

Key Points of Rent-To-Own:
• Portion of monthly rent payment is set aside by Landlord towards a future down payment
• Landlord/Seller locks you into a price today for a purchase tomorrow
• Forces the Tenant/Homebuyer to save towards down payment
• Tenant/Homebuyer still has to apply for a mortgage in the future to purchase the home
Rent-To-Own "forces" savings towards a down payment. Your Landlord deducts a pre-determined amount to hold in a special bank account, called an "escrow" account until you have saved up enough---through this "forced-savings" method---to meet a down payment to purchase the home.
At the end of the agreement, usually 2 to 3 years, you must apply for a mortgage loan to complete the purchase of the home. The terms of the purchase price, including the down payment amount, and the amount to be set aside from the rental for down payment, are all set down at the time of lease signing.

You can save for a down payment on your own.

If you are dedicated to the idea of buying a home, create a savings plan. When you have enough for a down payment YOU get to decide on the price you're willing to pay for a home based on market conditions.
With Rent To Own you're locked in to the house and to the price. What happens if three years from now your life situation has changed? Maybe you need a bigger/smaller home. Maybe your employment has relocated. Maybe your credit or income is insufficient to qualify for a mortgage loan.

Get Prequalified by a local Mortgage Banker. You may find you're qualified now for a mortgage loan.

Trevor Curran
NMLS #40140
0 votes Thank Flag Link Fri Oct 18, 2013
0 votes Thank Flag Link Tue Sep 17, 2013
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