Debunking the Myths of “Rent To Own” Real Estate Transactions

I am a big proponent of “Rent To Own” real estate transactions. If properly structured it results in a win/win/win arrangement for the home owner, investor and the realtor. Unfortunately there are a lot of  misconceptions surrounding the process and not many professionals offering unbiased advice. Many lawyers and realtors have never facilitated a rent to own transaction and therefore don’t understand the process. There are different ways to structure a rent to own deal so this adds to the confusion. We help unlock the mystery.

Benefits of a Rent to Own

For the home owner – Allows homeownership without the immediate need to qualify for a mortgage. A typical rent to own candidate lacks the income, credit or full down payment to qualify for a traditional home purchase. They simply rent the home until such time as they qualify for a mortgage. The investor may assist them in a savings program in order to accumulate the balance of the down payment. The mortgage broker assists with the credit repair.

For the investor – Attracts a better quality tenant during the rental process given the pride of ownership. Allow the property to be pre-sold without the need for additional real estate fees. Provides financial protection in the event the homeowner reneges on their responsibilities.

For the realtor – Allows them to qualify more purchasers. Clients that can’t obtain financing may still represent a potential sale opportunity.

What a Rent to Own is Not

1. A VTB (vendor take back mortgage). If the investor is transferring ownership to the homeowner on day one and holding a mortgage on the property, then this is not a rent to own transaction.
2. An arrangement where all rent is applied to the down payment. It seems unlikely that an investor would agree to this when they could simply rent out the property for market rents. Typically some portion of the rent is rebated as a means of assisting in the accumulation of a down payment.
3. A cash grab for the investor when the homeowner defaults on their responsibilities. Aside from unscrupulous investors, most playing in this investment vehicle want the property to ultimately sell as their profit is predicated on a successful transaction.
4. For properties priced above market value. Investors need to make money on the resale of the property. Price it to high on the resell and the homeowner will never obtain the required appraised valuation required for financing.
5. It locks you into specific properties owned by the investor. Many investors let you select the property of your choice as long as it meets their own investment parameters.

We are happy to answer any of your specific rent to own questions, touch base with us via email, comment, or social media.