How does rent to own work? My landlord has offered it to me and I don't quite trust him. If I give him 10,000

Asked by Dana, 15211 Wed Aug 20, 2008

as a down payment for the 23,000 he wants what happens if something goes wrong with the house. Who is responcible?

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Eileen Musser…, Home Owner, York, PA
Wed Aug 20, 2008
Dana, I think you need to be very sure of the terms you are using and exactly what they mean.

There are "rent to own" contracts that mean that you are simply renting the home but that the owner is putting some portion of your rent into an account so that you accumilate enough money to purchase the home if you decide to do that at some time in the future. It is not a purchase: he retains full ownership.

There are also "lease with option to buy" contracts, installment sale contracts, and true lease purchase agreements. All of these have different implications and the way they are used seems to vary from one place to another.
Be sure that you have somebody who knows what type of contract you are signing, and exactly what it means to you if things don't go as planned. (especially if you don't trust the other party in the first place.)

If you have $10,000 to put down, might it be better for you to write a standard agreement of sale? Or is he willing to let you buy the home and pay the balance over some period of time at a reasonable interest rate? By that I mean, will he "take back" a mortgage for some portion of the purchase price? Then you would be the true owner as I understand it, but could be required to give the property back to him if you don't make the payments.

One more thing for you to ask your professional to explain is the difference between "owner in deed" and "owner of record". If you are not the true owner of the property be sure that he is paying the taxes, etc.

You have a lot to think about....Get some good help. There is too much money and too much risk for you to try to go it alone on this one.

Eileen Musser, (a Realtor, but also an investor who has used a number of these vehicles to buy and sell property) NOT A LAWYER, yada yada
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Randall Yates, Other Pro, Dallas, TX
Thu Oct 3, 2013
Don't do it.. Rent to own can often end in the landlord defaulting on the loan and the home going into foreclosure. You are now out your $23,000 and must vacate the property.. You can go after the landlord in court but good luck recovering your money, there is a reason they defaulted, they have no money. I have Lenders that work with low credit scores even under a 600. Try buying the home you have the down payment..
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What about if say, someone is living and renting the home for 4 or more years, and paid for the house in full with the rent. If the renters were to ask the owner for a rent to own option...would they then, have to pay for the house a second time?
Flag Wed Apr 23, 2014
Ken Belferman, , Pittsburgh, PA
Wed Aug 20, 2008
I absolutely agree with Scott - have an attorney either write up the agreement or have the attorney review any existing agreement before signing anything. Any terms should be negotiable so don't be afraid to ask for what you want.
1 vote
Scott Godzyk, Agent, Manchester, NH
Wed Aug 20, 2008
In a rent to own lease, part or all of your rent should be applied tpwards your down payment or closing costs. As far as putting down a deposit for the sale, it should be held by an independant third party such as a real estate broker or attorney. As it is escrow money it needs to be held in an escrow account. You would sign a purchase agreement for the porerty in whoch it would outline the sales price, time to close and how the deposit is handeled if you do not buy and in what case you can get your money back. If he is asking for a non refundable deposit i would use caution. You should have someoen reviewing all documents befor eyou sign them such as a butyer broker or real estate attorney who can make sure you are protected. Make sure it is done right, dont become a victim.... Good Luck
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