Caution Sharks!!
Rent to Own can be the perfect solution for many people, but most people don't understand how it works and there are a lot of RTO investors that take advantage of that.
Many people think Rent to Own payments work like a loan or mortgage. You make a small payment every month and after the interest is paid the rest goes towards the principle. Some think the landlord just holds your money like a savings account and if you don't follow through you get the money back. A Rent to Own is not like that. You pay the market rent and then another payment called an option payment. The option payment is a fee for the opportunity to buy the house. Its two contracts 1. The "Lease" to rent. 2. The "Option To Purchase" contract.
At the end of your contract the option payments can be considered part of your down payment if you follow through and buy the house but it is not your money after it has been paid each month. Your initial payments and the monthly option payment is not a deposit. The sharks that take advantage of this misperception or misunderstanding look for any reason for you to break the contract so they can keep the option money and not actually sell you the house. This way they can pretend to sell it with a rent to own contract over and over. Your contract with them could be breached just by making one late payment and you have to start all over again.
There is also the Shark that bites out of desperation. These are people that price their house way above market value. As a result their house sits on the market for months and months, maybe even after years of trying to sell, they are tiered of all the showings and tire kickers. Desperate to relieve themselves of the commitments required to maintain the property. They recognize Rent to Own as another way to sell their house. They don't understand what a rent to own contract is themselves or how to qualify a tenant buyer and out of desperation take money from someone who really cant afford the house. The stage is set for a court battle.
Lets talk about how Rent to Own can be the perfect solution for you
There are 3 types of Rent to Own
1. Property First -
The real estate investor has an inventory of properties that they find a tenant buyer for. This method can be a win win for the investor because he gets predictable returns on his investment and a guaranteed exit plan. In a growing market the tenant buyer can lock in today's price helping them qualify in the future, saving money, and getting ahead of inflation. In a down market however you could be just risking your option payments to end up paying too much for the house.
Avail Properties specializes in building income properties. I generally only offer property first RTO for people wanting a property that has a legal suite that they can use to reduce the cost of home ownership. They end up owning a new purpose built income property that is low maintenance. They get every thing they need to take cheque's to the bank including their first tenant. In some cases the rental income can be used to help someone buy a profitable house that they wouldn't have been able to qualify for based on their salary income.
2. Tenant First -
This opportunity offers really good value. A real estate investor can coach you through the home buying process. Teaching you how to qualify financially for it with financial planning or credit counseling. Funneling a vast number of properties down to what suits your needs best today and guiding you as to which properties are most likely to give you the most value in the future. If your real estate investor is a contractor like my self, in addition to doing some renovation they can help you avoid the houses with all sorts of hidden defects and find lower maintenance properties too. You can leverage the investors experience in buying hundreds of properties. It's Dads advice times ten!
3. Work to Own -
Perfect for trades people. The investor helps them negotiate to buy a handyman special and the tenant buyer can use their skills to add equity to it. It will help them qualify to buy the house in the future. Many trades people have their accounting practices set up to pay as little taxes as possible. Unfortunately this practice is in conflict with their interest to buy a home because they need to have verifiable income. It's allot more complicated for self employed individuals to get a mortgage. I am a real estate investor, contractor, and a small business owner. I understand your situation and after 17 years in the business I am qualified to help you find, renovate, qualify, and buy a home.
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