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Can anyone suggest a "rent to own" program that is legitimate? Not quite ready to buy but want to start earning equity.

by b.robison283 from Cypress, California. Aug 17th 2016 Reply


Scott Fix (ScottFix)
#1330 ranked lender in California - 184 contributions

Explore all of the rent to own programs before you dive into this scenario. Very few if any will allow you to lock in at the current market value of the property while it continues to build equity. They will however hold a portion of your money as an earnest down payment for the property if you elect to buy the property. I would find a lower cost rental and sock away your money for a down payment and act later to purchase. Do not let the RTO or LTO company or individual have your money just in case you decide to buy. Look at the home purchase at a later date and put away the money in an account which will give you a healthy return on interest to help build the nest egg for future use.

Aug 18th 2016
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William J Acres (William_Acres)
#2 ranked lender in Arizona - 7,933 contributions

Ok.. so first let me explain the "inner workings" of a RTO... Typically, you agree to rent the property as a specified rental amount for a determined period of time, and in most instances, a portion of the rent will go towards the sale price. Sellers under this type of sale will most always collect a large, NON-REFUNDABLE , upfront fee called a "Option" fee or "rent/lease to own" fee.. Then at the expiration of the lease/rental agreement, you have to pay off the balance in order to keep possession of the property.. if you do not have the cash, you would need to obtain financing.. and if you don't qualify for financing at that time, and the seller does not agree to extending the lease/rental agreement.. then you stand to lose any fee's/credits you've paid. If property done, rent to own properties can be legitimate contracts, but they most always benefit the seller.. especially in today's market.. When the market has very low inventory levels and there are bidding wars on every property up for sale, then why would a seller offer their property up for sale as rent to own.. or offer some sort of selling financing? There has to be something more to gain by them doing it, otherwise they would just list it for sale and sell it in a day.. As a nearly 30 year real estate investor, the only properties I've ever seen being offered up as a "rent to own", "lease to Own", "Seller carries", or "Owner Financing", was when it benefited the seller.. They could have a property that does not meet conforming lending guidelines.. Shared well's, private access road's, manufactured home, non-warrantable condo's.. etc.. all of these (and many more) might have issues with financing depending on the exact scenario. Also, it's possible the seller is selling the home for much more under a RTO then what they could get if they just sold it outright.. They might also have a loan that's in default, and they want to collect a large "Rent to own or option fee" and collect rent until the lender forecloses.. or the seller could have a huge tax lien that would be easily discovered by a legitimate sale.. but not so much with a rent to own.. Personally, if you don't have the credit or down payment necessary to buy a home now and a RTO sounds appealing.. I would resist the temptation and avoid them at all costs.. you're better off renting until you are able to buy then by subjecting yourself to a one sided RTO transaction. In short, are they legitimate? Legally, yes.. they are.. but ethically? Most always, No!. If you have ever taken a real estate investing course, the RTO, Lease to own, is a strategy taught which has higher returns than just renting alone. Especially in "Landlord Friendly" states.. (like AZ). Here, if you do one of these transactions, and lets say your 6 months into your RTO, and for some reason, your ONE DAY late on the rent. Under AZ law, the landlord can send you a 5 day notice to pay the rent.. if you don't pay within the 5 days, they can evict you.. the process takes less than 30 days, and they DO NOT have to accept your rental payment if you try to pay after the 5 days.. if they collected say $5000 upfront and rented to you at $1500 (Market) per month.. then effectively, they rented to you for $2300 per month when you factor in the $5000.. 30 days your out, and the next one is in.. and it's all legal.. but as I said, ethically.. not so much! I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com NMLS# 226347

Aug 18th 2016
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Larry Gray (lgray_312_247)
#566 ranked lender in California - 1,127 contributions

With all the options to potential homebuyers available in California, it would likely benefit anyone wanting to buy a home to explore all those options before a "rent to own option." If credit is a primary issue and it seems it would take longer to get towhere homebuyers need to be in terms of their credit reports, then they want to wait...then at least a viable rent to own contract can be a path to home ownership.As William and Scott answered in their responses, you need to be careful about what you are getting. Also, note that you must be able to obtain your own mortgage loan by that time in many instances and especially if you want the best deal! I helped "rent to own" buyers two years into renting, purchase the property they were renting per such an agreement. It was a private party and friend so they were able to take advantage of a substantial gain in equity and apply dollars credited in the rent towards down payment and closing costs. We applied a larger lender credit to help them reduce that as well. It was not without some minor dispute between the two parties even between the two "friends" so perhaps legal representation would have been helpful in drawing up the agreement.

Aug 20th 2016
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