They simply do not work, and one side or the other will get screwed. Usually the "buyer", but as I can attest the owner can as well.
So, on properties I own and rent, I routinely say that I do not participate in those arrangements, I will however agree to sell the property to the renter anytime they want as long as they are in the lease with me. That's where I leave it. Here is why. There is no benefit in it for either side, even if it works out the risk is not equal to the reward. The good old days of a deal on a handshake, or assuming both sides are acting in good intentions are over. There are too many scams and "Get Rich Quick Seminars" preaching ways to work these deals in favor of one side or the other.
Typical Scenario you will see offered (you know on all the yellow signs written in black marker all over town that say "Rent to own...3 BR....$895 a month" or something similar. )
Owner say yes they will do a rent to own. With $x,000 down, and $xxx rent per month.
There are usually two reason for either party to want to enter into a lease to own or similar arrangement, so for simplicity I will do both scenarios for each party.
Buyer - Reason 1. - The buyer / "Buyer" is either not able to qualify for a loan right now and want to presumably have some equity building while renting and presumably repairing or correcting reason they cannot qualify currently.
Reason 2. - They want to trap the owner into a situation where they can screw the owner out of the property and drag the legal process out in foreclosure action, which is costlier and takes longer than a simple eviction, or hope the seller will not be able to afford the foreclosure process and simply live rent free for as long as they can drag it out then skip town.
Seller - Reason 1. - They want to rent the property out and and at some point sell it so why not allow them to pay down on it as they go along? This would ideally take the burden of insurance and taxes off them as well and on to the "New Owner".
Reason 2. - They know the odds are the renter/"Buyer" will not or cannot ever actually buy the property and plan to keep the usually significant deposit when they do not. Often they place obscure terms in the contract to do just this easier.
Issues: When any of the above takes place, the "buyer" may have created equitable ownership in the home. So now you are no longer dealing with eviction, if or when the renter decides to stop paying rent.
Mortgage: Often the property has a mortgage on it from a bank or lender. So this is an issue, a big one.
I have been in this business for several years, I own rental property, I have sold rental property. I have agreed to one of these scenarios over the years, and a partner of mine agreed for us in another. Neither have worked for either party. I still own the first one, I kept the deposit. They never tried or were ever able to qualify to buy the property. We left on good terms however and I still consider them friends. But we had a clearly written agreement to the terms. This is the number one mistake most people make, not having a clearly written contract stating all scenarios and how they will be handled.
The second one, not so good. Lets just say that we are still fighting this one and it will cost us a lot. Why? There was no benefit in it for us, we should have never done it, and the "buyer" is in my opinion on the side where they are trying to work the system to screw us.
So if you are considering one of these, I suggest you reconsider. (And consult YOUR attorney) If you do decide it is in your best interest to do so then carefully draft and review the contract and terms. Both sides. (I am not an attorney and do not play one on TV, so this is not intended to be legal advice you must consult an attorney for that before considering any of these options, or a sell or buy anytime in the future.)
I would be interested to see what if thought you have on the subject. Good or bad.
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