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Discussion Starter · #1 ·
Anyone know anything about these rent-to-own arrangements? I currently rent an apartment, but we're looking to move soon and I keep seeing these rent-to-own deals.

Are these legit? What are the pros/cons? Thanks, guys!
 

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I have done them before with some of my cheaper homes.

It can be a good for both sides, just depends on the deal. Make sure any fees you may have to pay go toward the purchase price if you choose to exercise your option.
 

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Unreconstructed
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Be extremely careful with this. "Rent-to-own" deals typically involve one of two tactics:

1. "Owner financing". A trend of late is to advertise "owner financing" that's not really owner financing. Legitmate owner financing involves an owners who owns the property free & clear and literally finances the mortgage, ie: lends you the money to buy the property: your name on title. The scam version of this is that they don't own the property free & clear. Rather, they have a mortgage. Their name is on title, not yours. You pay them with some kind of lease-purchase agreement. In many cases, a down payment is requested. You then trust that they are paying the mortgage with your money. If they don't and for some reason the home is foreclosed on, you are SOL. Sure, you can sue the owner but by that time they are usually bankrupt. You don't have a roof over your head. In a true owner finance situation, your name is on title. You don't pay and the owner forecloses. But you own it.

2. "Lease-purchase" agreements. This is a legitimate tool under the right circumstances. The problem is that typically a purchase price is agreed to in advance. In a declining asset value situation, a pre-arranged purchase price is a losing proposition. You may agree on a purchase price 2 or 3 years from now of $100,000. But 2-3 years from now, that property might not be worth $100,000. So it's going to be pretty tough for you to arrange financing unless you can come up with a whooper of a downpayment. Even if you do, you're paying more than the home is worth. You really roll the dice with this type of arrangement in our current market.

Above is the 5 minute version. Do your homework and consult someone with expertise prior to entering into any otpe of rent-to-own agreement. Lots of scams, and lots of owners so ignorant (and so in debt) that they don't even know what they are doing is essentially a scam. Much is up in the air about our economy - do not enter into contracts when so many variables are in flux.
 

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You have no equity until the sale is complete.

In the islamic world, collecting interest is a no-no. Rental-purchase provides profit without (seemingly) paying interest.
 

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It all depends on the contract. Have an attorney with a background in real estate law review the contract first. Usually costs about $150.00.
 

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Daca is caca
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be sure you have a fixed rate. my buddy was paying on a house for years. the lady (owner) passed, her daughter inherited the deal. she jacked up the rate, unbeknownst to him. all of a sudden his payments were coming back because he was short, she had raised the rate. also she can't seem to find the deed to another house he paid off in full. and have a title search done, as others have said
 

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It all depends on the contract. Have an attorney with a background in real estate law review the contract first. Usually costs about $150.00.
What this guy said. A real estate contract of any kind is one of the documents in life that should always be reviewed by a competent attorney. It could be a great deal for you, but if you are asking this question here you obviously need some professional advice. Get a good RE lawyer to look it over.
 

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Pistolero
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A contract for deed has been an inequitable and fraudulent, but legal, scam for 100 years.

You miss one payment and all the money you have paid goes bye-bye. Legally. You have no rights, no remedies, and no recourse.
 

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Discussion Starter · #9 ·
Be extremely careful with this. "Rent-to-own" deals typically involve one of two tactics:

1. "Owner financing". A trend of late is to advertise "owner financing" that's not really owner financing. Legitmate owner financing involves an owners who owns the property free & clear and literally finances the mortgage, ie: lends you the money to buy the property: your name on title. The scam version of this is that they don't own the property free & clear. Rather, they have a mortgage. Their name is on title, not yours. You pay them with some kind of lease-purchase agreement. In many cases, a down payment is requested. You then trust that they are paying the mortgage with your money. If they don't and for some reason the home is foreclosed on, you are SOL. Sure, you can sue the owner but by that time they are usually bankrupt. You don't have a roof over your head. In a true owner finance situation, your name is on title. You don't pay and the owner forecloses. But you own it.

2. "Lease-purchase" agreements. This is a legitimate tool under the right circumstances. The problem is that typically a purchase price is agreed to in advance. In a declining asset value situation, a pre-arranged purchase price is a losing proposition. You may agree on a purchase price 2 or 3 years from now of $100,000. But 2-3 years from now, that property might not be worth $100,000. So it's going to be pretty tough for you to arrange financing unless you can come up with a whooper of a downpayment. Even if you do, you're paying more than the home is worth. You really roll the dice with this type of arrangement in our current market.

Above is the 5 minute version. Do your homework and consult someone with expertise prior to entering into any otpe of rent-to-own agreement. Lots of scams, and lots of owners so ignorant (and so in debt) that they don't even know what they are doing is essentially a scam. Much is up in the air about our economy - do not enter into contracts when so many variables are in flux.
Thanks for taking the time to write this. Gives me a lot to think about and a start on my research.
 

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Unreconstructed
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Let me just add a few more quick things to my post as I was thinking about this last night (friend in similar situation). Do not consult a "realtor" for advice on this. Consult an attorney or a financial specialist. Regardless of whatever good things "realtors" bring to the table, you will find these two observations to be generally true: 1. All realtors feel they are experts in finance and economics. 2. Very few realtors know a dang thing about finance or economics. Further, realtors are ever-optimistic. And of course they are, because they don't make money when you don't transact. Consult a real estate attorney or financial advisor/expert. The profession of "realtor" is very similar to the position of mortgage broker (though neither profession would ever admit this): many, many people got into these professions during the bull market years, made good money, and convinced themselves that they were experts.

Also, note what I said in the earlier post: many, many owners out there who don't know what they are doing. Owning a property doesn't make anyone an expert in anything. Many people bought property during the boom years and made good money. Some made outstanding money. They convinced themselves that they were experts in something. Many found out the hard way that they are not. Easy to make money in a boom market when leverage is cheap. There are owners out there advertising "owner financing" that have a mortgage on the property. This isn't even a scam, per se. It's more like ignorance. And yes, some of those owners are realtors. I ran into this a few months ago when I was looking to buy a piece of horse property for myself. I was intrigued with the idea of owner financing due to the PIA of getting bank financing on rural land. (I've used owner financing in several situations in the past and it was a good, cheap option for both buyer and seller). The first red flag was that the owner was a realtor. "There's never been a better time to buy!" Right. Near the end of our meeting when we got down to brass tacks, it turns out the owner offering "owner financing" had a mortgage on the property. (face palm)

Final piece of advice: DO NOT make a down payment on the front-end of a lease-purchase. EVER. Save your down payment money for the purchase at the end of the lease term. Or walk away, lose your lease payment overage, but keep your down payment. The alternative is your owner may capsize and then you are out the bulk of your money.

PM me with any specific questions or if the above does not make sense.

-BWS
 
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