I have googled rent to own forum i have read that this is nothing but a scam for the renter/buyer - 70% of the forum on this topic were negative…if it’s true, can anyone explain ,
It seems to me to be a sucker move. You pay top dollar for a marginal property. Then you rent it for a year or whatever and really achieve no equity. In 12 months your supposed to close using the 12 canceled checks as a mortgage history? After paying top dollar rental rates. So the mortgage you couldn’t get magically appears after a year. Everyone I have heard of wanting a rent to own has been completely ignorant to the fact that they are not buying but renting and expected to buy in a year.
A friend of mine and his wife looked at a rent to own. First, Last, and security then after putting out $3k pay the rent and buy it in 1-3 years. They are in foreclosure now, so after they lose the house they are in getting a mortgage is going to be hard. AND if they need 10% down let’s just call it $10K they need to save $1,000 after paying $1,000 rent. $24K in a year before bills and food. HOW?
It seems to me like Rent-To-Own means hey sucker come rent my house and in a year or two destroy it mad you can’t qualify for a mortgage. The only way a rent to own would seem to make sense to me is if you need to move, will have the credit and down payment in a year or so, and understand the deal. The thing is most people don’t understand the process. It is kind of like a hard money lender not caring if a borrower defaults cause the property is worth as much or more either way. This is just doing the same thing but to someone who isn’t in the game. Go ahead and look at a rent to own. I’m not saying anyone doing it is a con but most are just bad deals.
rent to own…lease option…same thing…the buyer has to understand that they need to take care of things on their end or they won’t get financing.
My company actually gets them into credit improvement, helps them establish credit, and we have the financing arranged with a bank…assuming they do what we ask, and sometimes it is like leading the horse to water…
We keep a tight reign on the buyers, but in the end, they have more control over their decisions then we do.
Sounds like you are one fo the good guys.
Lease Option are NOT universally good or bad strategies for buying or selling. It all depends on what you’re trying to accomplish.
Residential lease/option agreements are usually defined, at best, as thinly-disguised “long escrows.” Rarely are they good for any other purpose.
Meantime, options are just that; options. It gives one party time to figure out what they want to do, if anything, in return for paying for that opportunity.
Essentially, the best options provide mutual benefit for each party. Rarely are good options one-sided. That’s doesn’t mean the benefits are equal, it’s just that benefits exist for both.
Regardless of the scheme to control or get rid of property, the character and quality of the person(s) involved greatly influence the character and quality of the deal itself. Otherwise, there’s nothing intrinsically bad or good about a lease option deal. It’s just a tool.
Tools aren’t bad or good. It’s what we do with them that makes the difference.
I’m in TX…oh yeah…LO’s are illegal here aren’t they…HA!..anyway, Mark Teixeira, the former first baseman for the Texas Rangers, lease optioned his little crack house valued at over $4MM that is up the road from me in Westlake for $13k per month. Is he trying to rip someone off? No…of course not…he had a house he couldn’t sell, and the buyers weren’t in a position to buy…enter…the lease option…did my company do this deal?..
Ummm…no…otherwise, I would not be posting on a real estate forum…I’d be getting a massage in Antigua…
Don't get me wrong I am not saying lease options or rent to owns are bad per se. What I AM saying is rent to own sounds like getting a t.v. from rent-a-center to most people. They think no credit, no problem. They have bad habits and huge expectations. I have looked a five or six in the Pittsburgh area for several people and every deal sucked. The same houses we sell for $90K are rent to own for $100K. On top of that they are rented at top dollar, every cent or more of fair market. AND the guys putting the paperwork together know they are dealing with an uneducated consumer. Are there good deals and reputable companies doing this yes, but it just seems to me they are the exceptionas far as I have seen.
The last one I looked at for a subcontractor went like this. Almost $5k down 1st, last, security, $1000 month (almost fair), nothing towards closing and the assurance that 12 canceled rent checks will qualify him for a refinance. No credit check which would seem to me a no brainer unless I hope for them to not be able to close. Child Support judgement, other judgements, and a credit score in mid 500's.
You’re right, there are definitely people that set others up for failure.
They like to put a revolving door on a house just to get more $$ down and get the house back in pretty good shape.
Whomever is doing deals the way you’re describing, would evidently not know how to make the big bucks, or create a good reputation with lots of referral customers. It doesn’t take long to get a bad rep in a given market. People talk, blog, and gossip about who the con artists are.
Now. about the price and payments. I’m not going to risk my credit and reputation for retail terms. I want OVER retail. I want the buyer to be invested in my deal, either with a big deposit, or big payment, big price, or all three. If he can’t (or won’t) give me one or the other, or all of the above, then he can continue renting the double wide on the wrong side of the tracks and we’ll both be happier.
Now… I don’t want to set the buyer up for failure. But I do offer nice properties, and I’m willing to sell to anyone who gives me my price and my terms WITHOUT CHECKING THEIR CREDIT. The latter is MY NICHE.
There are lots of buyer with options who can buy similar homes for less money up front, lower monthly payments, and get in lightly. That’s fine. I can’t help them. They don’t need my help to buy/control a decent home.
However, the ones that really do need my help, can’t borrow a rake, but have some cash, and a solvable credit problem will be glad to pay me my price and terms in order to put their kids in good schools, near “better” friends, and lower crime rates. The extra costs for a credit challenged buyer is just the cost of doing business. This isn’t a charity operation.
That said, I don’t do credit checks, but I do explain to my customers what to expect. And after I’m done with them, their credit is straightened out, they’ve shown proof of sufficient down payments, a payment history verified by a licensed and bonded third party that won’t lie for me or the buyer to the bank.
Bottom line is, just like Rent-a-Center; the value of the deal is in the eye of the beholder. If you want nice stuff in your house, and your credit is crap, well thankfully in America there are several companies to choose from who don’t care about your credit, and will empower you to eventually own a decent set of furniture, appliances, and a couple of computers for a weekly fee. No, it’s not a bargain, unless you consider a bargain being able to enjoy a nice living arrangement with internet access without waiting.
It’s that, or sit on cardboard boxes and navel gaze.
In my opinion you’re looking at this from a completely skewed vantage point. Sometimes, people get in trouble. Their choices are limited based on their risk. To overcome the risks, businesses charge more to cover the risk. This is exactly what rent-a-center does, and exactly the principal a good businessman would offer in a lease/option situation.
After all is said and done, I ask, “Who’s taking advantage of whom, here?”
:beer
I understand the situation a little better now.
I do agree that there is and should be a premium placed on a consumer whom has demonstrated poor financial management. Yes I believe you are helping people when you give them that chance. I just have a hard time with the R2owns I have looked at they are skewed heavily toward the seller, which they should be. As you said you help the buyer the ones I looked were F you pay me, and in a year have it figured out. Not just once but several times. So my experience has all been negative.
I like what I am hearing though and it is a good niche. I'd feel that I'd have a responsibility to educate my consumer and help them to close in a year or whatever. A premium price is fair as well to cover risk. I would just want to cash out ASAP.
Let me drill down a bit deeper here. You’re still of the mindset that only the financially incompetent are the most likely prospects for a lease option deal. That’s is not the case. I don’t want financially incompetent customers in my homes. I want customers that have a temporary, solvable credit issue, not those who are chronically unable to figure out their lives.
I realize that mentioning rent-a-center and the first thing that comes to mind is Angie and her boyfriend shopping at rent-a-center for a bedroom set for their new apartment together. Neither has good credit, both are chronically late or not paying their bills, and they’ve got collection agency’s numbers burned into their caller id.
These are not a good prospects for us. We want the couple with a solvable, temporary credit issue, not chronic deadbeats.
Okay, now I’ll admit, I do know “investors” that look for unsolvable credit issues, and promise the tenant/buyer the moon, in return for a fair amount of option money up front on a price that only makes sense to a lobotomy victim; knowing full well this customer either cannot possibly qualify for a loan; the appraisal won’t come in; or their credit will continue to stink, or some last-minute catastrophe will happen in the meantime to quash the deal anyway. It usually (always) works that way.
This is common when marketing low low-end real estate in minority neighborhoods. A typical example would be a three bedroom, one story, 1940’s bungalow near 40th and Jackson in Kansas City, MO. Just google that location and you’ll see exactly where this happens more often.
This is where I like to do these deals…
http://www.beautiful-homes.net/Pictures_of_Beautiful_Homes_2.html
I admit I am not a seasoned investor. I am a contractor trying to make the transition. As I network with successful people in my community I realize there is a different mentality that exists between the classes. I see that this type of deal can be good. It is just that Rent-To-Own at least in Pittsburgh is a term used to market to people who just don't understand.
For example, my foreman's Mother is looking to move. I show here the property we are working on. She asks about Rent-To-Own. She is a Registered Nurse, long time at the same job, no real credit problems, and just bought a car from a dealer. I ask her if she ever tryed to get pre-approved for a mortgage and she said no. She just automatically thinks it is beyond her reach. In my mind this is the target for a Rent-To-Own. Am I right?
I guess I am just splitting hairs, Rent-To-Own, or lease-option are pretty much the same thing. I am about to lease option a piece of vacant land. The owner doesn't have the resources or desire to do anything with it. I will develop it over five years starting with landscape supplies, then build self-storage. My L-O puts money in his pocket eliminates costs and gives me the opportunity to develop the land and buy it or sell it for a profit.
A scam is defined as “A fraudulent business scheme; a swindle.” So a lease option by definition is not a scam, assuming the person doing the lease option is acting in good faith (meaning they aren’t just trying to hustle deposit money with no intentions of delivering the house). Personally I’d go out of my way to help a T/B that really wants to buy the house.
However with that being said, I heard somewhere that 90% of L/O tenant/buyers never buy the house. Still that does not make it a scam…some default…some simply decide not to buy for a whole host of reasons. Hence the term lease “option.” Maybe they didn’t get their credit or down payment together. Again, that falls primarily on the tenant/buyer. If they knew they needed to be saving money and/or cleaning up credit and they didn’t do that then… :flush
Wow, are you serious Jav? You don’t check credit? This is your niche? How do you plan on qualifying a TB for a mortgage down the road and having it a sucessful deal without ensuring that they can qualify for a bank loan WITHOUT checking credit? I check a TBs credit and basically whole life BEFORE they ever move into one of my properties. I agree with everything else you just said, I’m just puzzled by the no credit check thing. Guess there is something I’m missing. Also on another note, my percentages on TBs who cash out are kinda the reverse. About 90% of mine qualify with say 18 months or so. Why? I make sure 1) I check their credit with my mortgage broker BEFOREHAND! 2) I make sure they have very close to the minimum deposit they’ll need to qualify within a fairly short amount of time. That means I have to screen a lot of TBs. That means I market like crazy. That means I have to ensure I work in enough time for sellers to pick up payments (sometimes for months before my payments begin) to ensure I can execute the way I want with marketing and screening. My strategy is to do as much front end work this way so that it is easy to qualify the TBs once their in.
Wow, are you serious Jav? You don't check credit? This is your niche? How do you plan on qualifying a TB for a mortgage down the road and having it a successful deal without ensuring that they can qualify for a bank loan WITHOUT checking credit? I check a TBs credit and basically whole life BEFORE they ever move into one of my properties. I agree with everything else you just said, I'm just puzzled by the no credit check thing. Guess there is something I'm missing. Also on another note, my percentages on TBs who cash out are kinda the reverse. About 90% of mine qualify with say 18 months or so. Why? I make sure 1) I check their credit with my mortgage broker BEFOREHAND! 2) I make sure they have very close to the minimum deposit they'll need to qualify within a fairly short amount of time. That means I have to screen a lot of TBs. That means I market like crazy. That means I have to ensure I work in enough time for sellers to pick up payments (sometimes for months before my payments begin) to ensure I can execute the way I want with marketing and screening. My strategy is to do as much front end work this way so that it is easy to qualify the TBs once their in.
No, I don’t check my buyer’s credit. If they give me the option money I’m asking for, and can fog a mirror, I tell them, “You qualify!”
Meantime, I could care less if they buy me out, or not. The longer I can hold on to the house the more money I can (theoretically) make off of it. It’s a lot easier to re-sell a house I have in inventory, than it is to get another house. I get my option money, payment spread twice in a row (and clasping hands in prayer) three times.
I don’t plan it that way, but I plan for it that way, if that makes any sense.
Meantime, after the buyers are emotionally committed to the deal, and I have their cash, I send the TB to my mortgage broker to get the financing going. He checks their credit. He also gets paid to help clean up their credit.
As an aside, dealing with B-grade bread and butter home buyers is worse than dealing with A-grade, upscale home buyers. The upper price point homes attract a higher quality TB with MORE money to spend on a house.
You probably do this, too, but I deliberately allow the buyers to negotiate the length of the terms, depending on the option amount, so that they are committed to the time frame. I want it all to be their idea, not mine.
Anyway, that’s my approach.
:cool
Ok, interesting approach. So let’s say your mortgage broker checks their credit (if I’m assuming correctly you already put them into the house) and the broker tells you they just got out of some big credit problem, and that it’d take 3 years to fully qualify, does that matter? Not being sarcastic, I’m just curious. Hey listen, I respect an investor who makes money in this business. Just because my approach differs doesn’t mean that is the end all and be all. My approach is to get the full amount of the cash as quickly as possible because it makes the seller happy (because they pay off the mortgage), the TB happy (because they buy a home) and me happy (because that’s how I make my big back end profit). As to a broker cleaning up credit, I’m not familiar with any broker who can clean up legitimate items on reports. I heard of many who claim to clean up items even if legitimately bad, but that is bull. I work with my buyers by getting to broker to check credit, see what is there beforehand, this way the broker can accurately predict when financing will happen and which lenders are willing to give mortgage money. I also care big time when TBs will cash me out. Like I mentioned above, makes everyone in the transaction winners. How can that happen if the TB doesn’t exercise option to buy? How can that happen if the seller’s mortgage doesn’t get paid off? It’s an interesting angle to talk about, just curious though don’t sellers get ticked off that it’s taking you so long to cash out their mortgage?
Last Edit: Today at 05:37:55 by kdhastedt
Okay, I’m seeing this on my posts quite frequently. What is causing this?
It’s caused by me (kdhastedt) editing your posts because you leave nearly a whole page of blank lines at the bottom of your posts regularly…
** Moderator Control - moderators may modify, delete, and/or move posts to a more appropriate forum without notice.
If I change a user’s context, I let them know…
Sorry if this caused any confusion.
Keith
Moderator
There are several moving parts here that I’m not covering and can only describe it like I’m a used car dealer… price or terms, or some combination. Meantime, I am asking questions about the seller’s “life” before we negotiate anything. I tell them what I can do for them, and how they can eventually get into their own, cheaper financing. If they are still listening… I explain, in detail, the process necessary to accomplish this.
Then they tell me if they think they can accomplish this, or not.
Meantime, most prospects tell me what’s wrong with their credit, without me directly asking. In fact, they’ll usually volunteer the information before they even see the house. So, it’s easy for me to take what they’ve told me and I explain the prospects they have for making a deal.
Frankly, this might be the time to paint a “bad picture” followed with a mutually beneficial solution.
In a nutshell, I might say, "Well, obviously you’re not gonna be able to borrow a toothbrush anytime soon, huh (said with a smile on my face)? They nod with agreement. I add, if I finance you for say 7 years are you willing to give me 20% down? Bottom line they can/will or they can’t/won’t. But I let them tell me. Frankly, I’m a little more elegant in my approach, but that’s the drift.
That all said, most people with bad credit, are not looking to throw their money away and walk into a wall. So, they disqualify themselves if what I’m requesting they feel they can’t live up to. This causes me to sift through several prospects until one of them is ready to deal.
Now, if I’ve got a boatload of equity, I’ve got more options myself. I might not need to seller finance to turn a lemon into lemonade. I just sell for cash.
However, most of the actual lease option/land contract deals don’t have much equity (realistically) even if I bought (or optioned) for 10-15% below market. So, selling on terms, including lease options and land contracts, makes much more sense, and even more sense, if I can resell the same house a couple of times for $10k to $15k down each time.
BTW, I never tell a seller in a sub2 transaction that I’m paying them off anytime soon. In fact I leave the impression in some situations that it will be nigh unto impossible to get new financing on this property anytime soon,and if that’s what they’re needing, then I’m not a solution for them. The fact is that the way I do my deals, the seller can move on completely, and the only thing connecting them to the deal whatsoever is a good credit history on this loan “for once.”
So, there’s few “ticked” sellers in my business. That doesn’t mean they arent curious how things are progressing, etc.
I agree that credit repair is an iffy deal. However, the process serves to keep our buyers focused on their problem, so to speak, if not their solution.
Keith, can you edit my posts to end with a horribly vulgar joke? OK…maybe just a vulgar joke…
Maybe just with words of wisdom…you know…something that brings a smile to everyone’s faces…HA!!!