Rent to own: Good idea or bad idea?
Personally, I think it's a bad idea. Really bad idea.
Note: I consider lease/purchase and rent to own the same thing. Although they are technically different, I put them in the same category. So if I refer to "rent to own", I'm implying both.
People want a rent to own situation because of several things:
- credit or bankruptcy
- lack of income
- debt structure
- stage of life (ie divorce)
- instability of future
- try before you buy
While I don't discredit the validity of those arguments, I'm not a fan of rent to own or lease/purchase. Here's why:
When you rent to own, you put TOTAL CONTROL of the transaction into the seller's hands. The seller dictates to you all terms as to price, condition, interest (if applicable) and amount applied to purchase. You have ZERO control.
Let me back up...
When you BUY a home, you want to get the VERY best deal on a home that you can. ALWAYS think resale on the home you purchase. Always! Whether it's in 2 years, 10, 25 years or your estate, always think resale. If you enter the property at too high of a price, you will have extremely difficulty in recouping your investment or making money on the home.
The ability to execute on a purchase agreement translates to LEVERAGE. I would put leverage into these descending categories:
- cash. It's always king and talks the strongest!
- preapproved with no contingency (something has to happen for you to buy, ie sell your home)
- prequalified with no contingency
- preapproved with contingency
- prequalified with contingency
- no preapproval with no contingency
- no preapproval with contingency
- seller financed with down payment
- seller financed with no down payment
- rent to own/lease purchase
Early in my real estate experience, I tied to do rent to own transactions. NONE of them worked. It was frustrating for all parties...lots of disappointment and even anger.
As a realtor, I have a fiduciary responsibility to represent you well. This means I have to have your best interest at heart. I cannot in good conscience do the rent to own/lease purchase with that in mind. I simply don't do them.
So.... you might ask: "what do I go?"
Glad you asked!
Rent for a season and get your house in order. Pay off credit card debt, increase your income, live on a budget, clean up your credit report, SAVE MONEY, let life circumstance have a clear sense of direction and get ready to buy at sometime in the future. Budget as though you are a homeowner, not a renter. Get to the point that you can get PREAPPROVED for a mortgage.
Once that's done, THEN YOU HAVE LEVERAGE! Then we can go and ask for closing costs, ask for a better deal, negotiate for the best situation and you have some control. Remember on the rent to own/lease purchase, you are simply along for the ride for whatever the seller wants to do. You have NO CONTROL!
I hope this provides some insight into this issue. This is not a popular post with some...that's fine. The ones who really promote the rent to own are the ones who stand to profit the most.
Call me if you want to talk further.