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I've been looking on craigslist to try to get an idea of rent prices in different areas that are near grad schools I'm interested in.
One out of every 3 or 4 posts is a rent to own ad, which says no credit check is needed and at the end of the lease term you have the option to purchase the home. One ad states that they can do this because you are directly dealing with the home owner and not a bank.
Are any of these things legit or is it all a big scam, with hidden terms that are going to trap you at the end of the lease period.
I've been looking on craigslist to try to get an idea of rent prices in different areas that are near grad schools I'm interested in.
One out of every 3 or 4 posts is a rent to own ad, which says no credit check is needed and at the end of the lease term you have the option to purchase the home. One ad states that they can do this because you are directly dealing with the home owner and not a bank.
Are any of these things legit or is it all a big scam, with hidden terms that are going to trap you at the end of the lease period.
Anyone have any experience with these things?
Thanks in advance!
I imagine your searching in just the rental section. The reason many are like this is not b/c the owner sersiously wants to sell the home via rent to own but b/c HOA or condo boards don't allow people to rent units however if its called rent to own you are selling and not renting.
Rent to owns aren't a total scam but I guess it depends as there is no one formula for this, its a deal the landlord and buyer work out so it totally depends on what you lay out.
Typically this wouldn't be for a 15 or 30 year mortage. Probably more meant for someone who is cleaning up credit, has a sales job and needs 2 years to prove income to get a real loan, etc.
At least with rent to own some though generally not much of your rent goes towards the down payment on the home.
Idea being in 1, 2, 3 years you will refi and actually buy the property but have some $$$ going towards down payment.
Typically the owner will draw the contract so in that sense who do you think the contract is going to favor?
The idea is good but generally its not part of your rent going towards down payment, its additional money your ponyhing up so basically you may as well rent a normal place and put that extra money into savings. You keep your options open and you dont have to have a down payment like most rent to owns require.
Like I said though everything is dependent on you and the seller so if you negotiate good terms it may be good.
I see a ton of RTO listed under the rental section of CL, and they scream scam to me. The prices they list for what you get are very low,which is a huge red flag, and they don't mention the city, just the state. Most have no phone number, either, which is another red flag.
Our tenants are interested in rent-to-own, so we called the real estate attorney to see what we could do to make it work. (In our case, we are willing to finance, rather than just rent-to-own.) He said he has never seen one actually work out.
I forgot to mention that the wording in those scam ads is often kind of "funny". You can tell they are written by someone foreign sometimes. And they use words that stand out. For example, I've seen several advertising homes in Maine that include a "lanai"! Big red flag!
Usually they benefit the seller more than the buyer. Most require a hefty down payment and a possible balloon payment in several years. Also if you lock yourself into a contract on a specific price that price still needs to be honored even if the market tanks.
My BIL did this and I tried to tell him it was a bad idea. I have no idea why people ask for my advice and then the complete opposite. Anyway, he had filed bankruptcy the year before and couldnt quality for a mortgage. So he chose to go the rent to own route. He found a house, 1100 a month, 5k down and the purchase price was 124K. A 100 dollars of the rent would go towards the purchase price of the home. After living in the house a year, the dishwasher broke. He called the landlord and the guy told him the house was his problem since he owned it. Okay no one owns a house unless their name is on the deed. My BIL paid to replace the dishwasher for 500. Then the roof started leaking and a complete tear off was required. Landlord gave some guff about that too but decided to split the cost of the roof. How generous. My BIL paid his share of 2500. Finally BIL gets a mortgage approval and they start the process of purchase. The housing market crashed and the house would not appraise for more than 85k. My BIL haggled with the landlord but he would not budge. Why would he? If BIL walks away, he got 5k, plus a new dishwasher in the property and got someone to split the cost of a new roof. Finally BIL cut his losses and purchased a completely different house. A complete waste of money. He could have banked those funds for his new home. The landlord put the house back up for rent and got a new sucker to give him a down payment of 5k.
We have an owner that is also offering it but no high fees. Of course he wants to get "what" a value "could" be in 2 or 3 years and nobody really knows so it could be higher, but on the otherhand the tenant has the chance to use the security deposit towards the buying of the home...
We allow the person to move in for $ 2000.- which will be towards the buying for the home....than $ 100 of the rent goes towards the buying, the rest is considered rent and the tenant is responsible for certain repairs up to $ 300.-. To me that is not such a bad deal for having a chance to own the home, make it nicer and meanwhile working on your credit...but the owner also accepts regular tenants for renting...so it is their choice.
One of the tipoffs that an ad is a scam is if there are language problems. Many of the scamsters are not native English speakers. If you have one you are interested in, my advice is to look up the ownership records via your local tax assessor's office (or whoever has those records in your area), and call them to make sure the contact information and terms offered in the ad are legit.
Other than that, in my experience, people offer lease/options because they know that most people never end up closing on the house. So the terms may be a large, nonrefundable deposit (think $10k or more) or higher than market value rent. Then when you don't buy, they have gotten a good deal.
It's a can of worms in just about every situation.
I do know long term renters where the Landlord decided to sell they bought the home.
The problem is situations continually change and you are making an agreement for something to be done at a future date.
An option to buy in commercial Real Estate is a little more common... it is prepared by a Real Estate Attorney and often the agreement is recorded with the county.
If it sounds too good to be true... well, you know.
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Wow..
