Comments on: First Time Buyer Friday #10 – How Does Rent To Own Work?

By: aes047

aes047 — Mon, 28 Nov 2011 20:43:00 +0000

I was wondering, if you register an AFS on the title to the property does that also protect the buyer in such unfortunate circumstance as the seller passing away before the transition was completed? I only ask because an elderly man has offered us a rent-to-own and what should happen if he passes…will we lose all of our money when the house is left to his heirs? or will they have to carry out the contract?

By: Tim Ayres

Tim Ayres — Sat, 19 Nov 2011 03:19:00 +0000

Hi there, thanks for your insight from the landlord perspective – it’s good to have your point of view. I really appreciate the comment!

By: Investor1500

Investor1500 — Sat, 19 Nov 2011 03:03:00 +0000

Hi Kim,

I have done 2 rent-to-owns (as landlord) and both times I negotiated a certain % increase in the value of the house per year. I tried to base it on 50% of the projected increase over the term of the RTO. For example, if a house is worth $400,000 today, and is projected to increase annually by 8% per year, then I charge 4% per year. on a 2 year term, the renter has the option to buy the house for $432,000.

There are a number of reasons why investors would do this, contrary to the article’s comments. For example, you pretty much have a guaranteed buyer for a property in 2-3 years, thereby eliminating much of the closing costs (i.e. realtor fees being the largest). Plus, it allows me to invest in real estate with only 20% down, so i can do a few RTO’s at a time. With the non-refundable down payment from the renter, it is a major incentive for the renter to actually follow through and exercise the option to buy, as well as the renter taking good care of the property (it is gonna be theirs after all). These are just a few examples, and all terms are negotiable.

This program is really only for people with bad credit and who make decent money and really want to get into the housing market. If you had good credit, there’d be no point in renting to own, just go to a bank, you’d be way better off.

By: kim

kim — Tue, 04 Jan 2011 11:01:39 +0000

All the info here is quite interesting but I have one question I cannot find an answer to anywhere. How do you set the purchase price? Since prices have dropped somewhat do you set the purchase price at today’s prices or if you are going to have a 3 year term do you set the price at today’s price plus a value of what you think the house may be worth in 3 years? If a house is worth $200,000.00 now and with an assumed increase of 3% in year 1 is the price of the house set at $206,000.00 if the term is for 1 year?
Thanks

By: jessica

jessica — Sun, 28 Nov 2010 19:35:49 +0000

in a rent to own agreement where there is a basement suite involved; who collects the money from the rental unit?

By: Lissette

Lissette — Tue, 14 Sep 2010 18:20:30 +0000

One more thing: If I chose to go with a rent to own with my property, will I have a difficulty in getting another mortgage during the term of the AFS?
Thanks,

By: Lissette

Lissette — Tue, 14 Sep 2010 18:06:53 +0000

I am considering a rent to own situation on my property. However, the current mortgage payments are high. I would feel terrible asking for more in terms of a downpayment applied to the term. Can this be done? Can the downpayment be waived all together? What is the min. years allowed for a term? Once the deal is done, would I still be making payments to my lender or am I eliminated from the process? Currently, I am not interested in a profit, I simply want to not have to keep paying for a house I am not living in. Selling has been difficult with this market but I have had renter’s inquire about a rent to own situation.
Also, do I need permission form my lender to do this?
Thanks,

By: Vivian Krieger

Vivian Krieger — Fri, 10 Sep 2010 19:08:37 +0000

Does a person have to own there house outright before entering into a rent to own agreement? What if there is a mortage on the house?

By: TimAyres

TimAyres — Mon, 29 Mar 2010 21:00:07 +0000

The things that you bring up in your questions are matters of negotiation between the seller/landlord and the buyer/tenant. You will have to come to some sort of agreement with them. What would seem reasonable is that you would be responsible for the systems of the home, such as heating, hot water tank, etc, and they would be responsible for other things that they wanted to buy for the house, like appliances. But, everything is open to negotiation. I’m not sure about the length of time for the rent-to-own agreement – I supposed that is a matter of negotiation also, but consider if you choose to allow a term longer than, say, 5 years, your opportunity cost. That is, how much money are you foregoing by allowing them to pay you a small amount each month as opposed to having the lump sum available to invest in other ventures. Another consideration is house values. If I had rented to own the house I bought six years ago, I’d be making an amazing profit right now if I turned around to sell it, at my landlord/seller’s expense.

Anyone considering a rent-to-own scheme should seek legal advice as to the procedures, rights and obligations, and consequences of entering into such an agreement. I am not a lawyer, so I can’t give legal advice.

By: Lynda

Lynda — Sun, 28 Mar 2010 18:41:20 +0000

I am considering a rent to own agreement with some friends that cannot get a mortgage. My property is paid for. If I enter into this, would I be responsible for any repairs or replacements of appliances, furnace, hot water tank etc? OR can I put a stipulation that they be responsible for whatever repairs and replacements are needed and the cost will come off the final payment. That may be a bad idea if they want all new appliances etc., as in the end, I would be the one paying for them right?
I also want to make it affordable for them, as money is an issue, so is there any limit to the amount of years you can stretch the payments, and with an older home,would that be a wise thing to do?
Lynda