How does the rent to own process work? (tenants, appraised, mortgage)

[icequeen2008]

I have been approached many times on doing this. I dont know much about it though can anyone help me? Thanks.

[MrRational]

Rent to own is almost always scam or at best a fools errand for the buyer.
The seller, whether they want to sell or not (and do be sure of which type you're dealing with) will usually come out ahead no matter what happens unless hey are as foolish and ill-prepared as most R2O buyers are. There are a few exceptions that can work out... but these exceptions are indeed just that: very few and very far between.

Bottom line: If you don't have the credit worthiness and up front cash needed to qualify for a mortgage...
the far far (FAR!) wiser thing to do is to rent CHEAP for a couple of years while you fix your credit and save up some money.

[Mark Brian]

Originally Posted by MrRational

Rent to own is almost always scam or at best a fools errand for the buyer.

The absolute truth!

[rfr69]

Originally Posted by MrRational

Rent to own is almost always scam or at best a fools errand for the buyer.
The seller, whether they want to sell or not (and do be sure of which type you're dealing with) will usually come out ahead no matter what happens unless hey are as foolish and ill-prepared as most R2O buyers are. There are a few exceptions that can work out... but these exceptions are indeed just that: very few and very far between.

Bottom line: If you don't have the credit worthiness and up front cash needed to qualify for a mortgage...
the far far (FAR!) wiser thing to do is to rent CHEAP for a couple of years while you fix your credit and save up some money.

I have heard a few people on these boards have good experiences but more often than not thy aren't the greatest deal. THey aren't all bad depending on your situation though.

Sure it benefits the buyer and normallly quite a bit but realy what would you expect. There's a reason someone can't get a loan from a real bank. If a bank who has lots of capital, spreads risk, etc won't take a risk on one individual then for a person who doesn't have all that capital, backing, and spread risk will have to charge alot more to make it worth their while.

There's really no set formula though, every deal is worked out differnet so it's what you negotiate.

I think these deals are slightly more common and more neutral now just because bnaks are even hesitant to loan to people with good credit in some areas and since the housing market is bad some people feel they need to offer these to sell a house.

Rarely would someone caryy the mortgage for more than a year or two. It's my understanding these deals are meant for short term things like salesmen only been at a job for 9 months, can't get a traditional loan without showing two years of pay stubbs. May rent to own for a year until he has enough time at the company to get a loan.

[Java378]

The funny thing is, the people who peddle rent-to-won the most to me are people looking to buy.

I consider it a scam because they want to barter inferior labor and no money at all for a complete house. Someone even wanted possession of a vehicle that their labor didn't even completely pay for after they kept borrowing money.

[fallingwater]

A few years back I had a rental property that was becoming a nightmare with tenants. I called in a property management company and we discussed the rent to own option. He smirked as he told me the details because basically its only a good deal for the owner. I opted not to go this route and eventually sold the property out right.

A family member of mine got into one these deals as a buyer and he got screwed. This is basically how it goes from my knowledge.

Let's say you have a home and you want to sell it for a 100k. You establish the rent at 1100 per month. A hundred dollars of the rent goes into a fund to establish a down payment in the future for the buyer. Lots of times the seller wants a down payment upon moving in. This can be thousands of dollars. When a certain amount adds up then the buyer tries to obtain a mortgage. Sounds good except that maybe the house does not appraise for a 100k. Lots of sellers will not reduce the price so the buyers can obtain a mortgage. The buyer eventually walks away losing all the money that was set aside along with the original move in costs. This is what happened to a family member of mine. He put down 5k to move into the house. He rented the house for 2 yrs. When he tried to obtain a mortgage the house appraised for 20k less than what the seller wanted. The market dropped and there was no way to obtain a mortgage on the property for the price the seller had established 2 yrs prior. This family member had to walk away. He lost the 5k plus all the "extra" rent he paid. Complete waste. He should have just rented and used that money for a regular deal. That is eventually what he did. The seller kept all the money and slapped a rent to own sign out on the lawn shortly later waiting for his next sucker.