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How does a "rent to own" situation work? Are these scams?

by melissa.rounds481 from Mission Viejo, California. May 10th 2016 Reply


Martin Mesa (info_966_586)
#634 ranked lender in California - 18 contributions

It's not a scam if done properly with a legally binding lease agreement with the option to buy in the future. Basically it's like a regular lease agreement between landlord & tenant but usually allows the tenant to option to exercise a right to purchase the property from the owner/landlord after a certain amount of time (usually the term of the lease) at a specific future price. Oftentimes, these agreements allow for a certain portion of the rent paid during the lease term to be applied towards the future purchase price. I'm not an expert in these but from the little I do know about them, they can be a great way to buy property in the near future if you're not ready to buy right now. It's also a great way to buy a property you like in the future from the owner if the owner is not quite ready to sell it to you at this moment.

May 10th 2016
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Larry Gray (lgray_312_247)
#5 ranked lender in California - 1,127 contributions

It looks like you received some good answers thus far. I did a purchase loan for a rent to own borrower and the owners who she knew very well sold it to her at the value from when the lease started. Normally though the price you pay will be evaluated through an appraisal on the property when you are ready to apply the portion of rent credited towards purchasing the home. I find that a lot of people do not realize they qualify for down payment and even closing cost assistance and that can often be a better way to go as you can purchase while rates and prices are lower. You are welcome to contact me thru my profile for further questions, and I would be happy to qualify you for the program. We fund and expedite the loan and the assistance as a direct lender.

May 10th 2016
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William J Acres (William_Acres)
#2 ranked lender in Arizona - 7,788 contributions

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 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 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. 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

May 11th 2016
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William J Acres (William_Acres)
#2 ranked lender in Arizona - 7,788 contributions

One more thought.. Are they a Scam? Legally, most are legitimate.. Ethically, they are most always a SCAM... 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

May 11th 2016
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