Anyone do a Rent or Lease to Own house?

[flower04]

What was your experience?

[justbroke]

As a landlord/owner/seller let me tell you the pitfalls of this. If you do this, make sure you have two contracts. The first would be your rental agreement, and the second, your Option contract. Make sure you have an attorney review the option contract!

There are unscrupulous investors out there who pray upon the unfortunate. A rent/lease to own contract can have many pitfalls for the lessor (jnot the owner). Many owners -- the unscrupulous ones -- will have clauses in the Option contract that if you are ever in default of the rental/lease agreement, then the option contract is void. Then there's another clause that reads that if the option contract is void by default, any deposits are kept.

So, here's where the unscrupulous owners get you. They want you to be late on just ONE lease/rental payment. Then they keep your entire deposit (which could be several months worth of rent... and I've seen these deposits at $10K too) and don't have to adhere to the option contract any longer. It's a great way to get money for owners.

How to protect yourself?

1. Make sure you understand the option contract and have it looked over by an attorney.
2. Make sure the owner is NOT in foreclosure! There are many owners out there that have listing for lease/rent to own. The problem is, they want a massive "deposit" for the lease option. This is because they are trying to cure a default on their mortgage. Be vary wary of these.
3. Negotiate the deposit. Many of the honest landlords/owner will only charge a nominal "option" deposit of 1 or 2 months of the standard rent. If they want $10K... run.
4. Understand how much, if any, of your monthly rental payments go towards (credited to) your purchase/downpayment, prior to signing.
5. Ask the landlord/seller if they have ever had a contract on the home and what happened? This will let you know, if they are honest, what happened to the prior option seekers.
6. Make sure the "option" deposit is an actual "deposit"! If it's a deposit, then your State's deposit laws are in affect. This means, in many States, that the deposit must be placed in escrow and may even earn interest. If not, then the owner can pocket it and then if you don't exercise your option due to the landlord/owner's breach, may be difficult to get back because they already spent it!

Just my honest opinion on these. Yes, I listed my investment property as such, but never signed an "option" with anyone. It's a shaky business and there are those out there praying upon the folks who really want a home, but can't afford the deposit.

[Nick9075]

As a landlord/owner/seller let me tell you the pitfalls of this. If you do this, make sure you have two contracts. The first would be your rental agreement, and the second, your Option contract. Make sure you have an attorney review the option contract!

There are unscrupulous investors out there who pray upon the unfortunate. A rent/lease to own contract can have many pitfalls for the lessor (jnot the owner). Many owners -- the unscrupulous ones -- will have clauses in the Option contract that if you are ever in default of the rental/lease agreement, then the option contract is void. Then there's another clause that reads that if the option contract is void by default, any deposits are kept.

So, here's where the unscrupulous owners get you. They want you to be late on just ONE lease/rental payment. Then they keep your entire deposit (which could be several months worth of rent... and I've seen these deposits at $10K too) and don't have to adhere to the option contract any longer. It's a great way to get money for owners.

How to protect yourself?

1. Make sure you understand the option contract and have it looked over by an attorney.
2. Make sure the owner is NOT in foreclosure! There are many owners out there that have listing for lease/rent to own. The problem is, they want a massive "deposit" for the lease option. This is because they are trying to cure a default on their mortgage. Be vary wary of these.
3. Negotiate the deposit. Many of the honest landlords/owner will only charge a nominal "option" deposit of 1 or 2 months of the standard rent. If they want $10K... run.
4. Understand how much, if any, of your monthly rental payments go towards (credited to) your purchase/downpayment, prior to signing.
5. Ask the landlord/seller if they have ever had a contract on the home and what happened? This will let you know, if they are honest, what happened to the prior option seekers.
6. Make sure the "option" deposit is an actual "deposit"! If it's a deposit, then your State's deposit laws are in affect. This means, in many States, that the deposit must be placed in escrow and may even earn interest. If not, then the owner can pocket it and then if you don't exercise your option due to the landlord/owner's breach, may be difficult to get back because they already spent it!

Just my honest opinion on these. Yes, I listed my investment property as such, but never signed an "option" with anyone. It's a shaky business and there are those out there praying upon the folks who really want a home, but can't afford the deposit.

No one would enter into this type of contract with someone who is about to file for bankruptcy. I mean honestly, think about that. If I had to apply & get denied at over 30 rentals just outside the Boston area in Massachusetts where my gross salary was well over 3 times monthly rent, who is going to due a 'rent to own' agreement?

Also, being late on one payment makes this 'null & void'???

most contracts where there is a concession there is something like this.
Ex. I am receiving a rent concession totalling over $4,000 over a 15 month lease. If I am more than 5 days late on ONE payment, the entire concession including future amounts is immediately due & payable at a rate of $381 * 15 months

And this is a major property management company here in the Boston area not some mom & pop real estate investor.

[justbroke]

No one would enter into this type of contract with someone who is about to file for bankruptcy. I mean honestly, think about that. If I had to apply & get denied at over 30 rentals just outside the Boston area in Massachusetts where my gross salary was well over 3 times monthly rent, who is going to due a 'rent to own' agreement?

People have entered into these agreements with people about to file bankruptcy. Absolutely true. So, how do you know they are about to file bankruptcy? That's why it is incumbent upon the prospective "purchaser" to do their due-diligence, and hire a lawyer if you're entering into this type of sales contract.

You would also be shocked, probably.. since you already are... that there are many "investors" in the Southeast who will enter into these agreements... with you or anyone else. The predatory types want you to fail on the lease so that they can keep the deposit (which they won't call it that for legal reasons) from the option contract.

I was about to enter into an agreement pre-bankruptcy with someone who had trouble renting and earned 4 times median income and 5 times the monthly rent. These types of "lease-to-own" contracts are usually done by individual investors. There is a lot of money in this business, if you're into the predatory aspects of it.

Also, being late on one payment makes this 'null & void'???

Yes! There are predatory "lease to own" landlords out there and they have such clauses in the "Option Contract" to make it void and your earnest deposits surrendered as liquidated damages. Absolutely true.

most contracts where there is a concession there is something like this. Ex. I am receiving a rent concession totalling over $4,000 over a 15 month lease. If I am more than 5 days late on ONE payment, the entire concession including future amounts is immediately due & payable at a rate of $381 * 15 months

That's on a lease, I'm talking about an option contract. That's why it's separate from the lease.

And this is a major property management company here in the Boston area not some mom & pop real estate investor.

Of course for standard leasing, any concessions can be void and any value from the concession immediately be due to the landlord/manager. However, that's on a lease agreement.

I have posted this as a public service notice. Especially since many people don't understand option contracts and believe that they are going to easily purchase that home in the 12 to 24 month term of the "option".

For fun, if you're bored, just go onto Craigslist and search an area like Orlando, Florida for Homes for Rent with "Option to Buy" contracts. Just use the keyword "option" in your search. You may just be surprised!

[Rick9972]

We had our rental house as a lease to Own twice. It failed miserably both times, but from the pure financial side of it we came out OK, due to the clauses you just mentioned.

There are some very wealthy people out there that made their money off failed Rent to Own houses. I know a few of them, and used their contract for my own. For me though I actually changed it so the people had a chance. The origanal contracts, there was no way that house was ever going to actually change owners.

I will state for the record though that the first house I ever bought was on a REnt to Own Contract and it worked out well for everyone. So do your research and know what you are jumping into.

[justbroke]

Thanks Rick... it's nice to see that there are -- which I know there are -- some landlords that are honest. I almost did one of these myself with an investment property I owned, but it seemed like too much trouble unless you wanted to be in the business, solely to make money.

[Toby629]

The home we now live in was originally bought on a land contract. We did not have enough money for the traditional 20% down for a regular mortgage. Thankfully, the owner was agreeable to let us purchase the home on land contract. We paid the owner a small down payment with a set payment for 5 yr., at which time we would then get a mortgage and he would be paid off. We found a good lawyer who knew exactly what should go into the land contract, the owner had his own lawyer go over our land contract drawn up by our lawyer and it was a done deal. We refinanced before the 5 yr. contract was up, he got paid and everything was good.