Is rent to own a house a good idea?

It can be since you can usually set the purchase price now even though you won't actually buy until later.

Be sure that your contract clearly indicates what amount of your rent will be applied as a down payment. And be aware that lenders will only consider the amount paid over typical rents in the area as down payment. Keep good records for your future mortgage application.

It is also a good idea to talk to a local mortgage broker or bank now since you want to be sure you will qualify for a loan when the time comes.

Have an attorney look over the paperwork as well.

Good luck!

Good answers here. Follow their advice

Yes. Just be sure either 100% or a significant portion of the rent/lease is actually going towards the purchase.

yes good way for someone without a big downpayment.

Well, since this is what I do, let me "chime in". All rent-to-owns are not created equally. Without the added protection layers offered by the use of Land Trusts, there are many potential pitfalls that can occur. These usually crop up when a tenant get sued or a married couple moves in, then starts divorce proceedings while in tenancy. Their lawyers start looking for assets to divide and decide that since they paid an "Option deposit" and have part of their rent going to "rent credits" toward a pre-determined sale price that they have an equitable interest in the property. As they "fight it out" the rent goes unpaid, leaving the mortgage unpaid and the house goes in to foreclosure. Ugly? You bet!

BTW, almost all rent-to-own's violate the lender's Due-On-Sale admonitions and the underlying loan CAN be called (accelerated). Thankfully, this doesn't happen often but it's happening more and more as interest rates rise. Only through the use of land trusts is this avoided completely.

Are rent-to-own's still a good idea? Absolutely! But only if structured properly. My deals are all structured in this manner:

House's deed is held in an Equity Holding Land Trust with the Seller as beneficiary. Seller names tenant/buyer as a co-beneficiary. You've then converted Realty to Personalty and protected the house from lawsuits brought against any of the beneficiaries (jointly-owned Personalty cannot be divided to satisfy a judgement against one the owners).

For the Buyer, it's simple. 5% + the first month's rent, MOVES YOU IN! When you refinance into your own name, you get your 5% back + 50% of any appreciation that's property's realized. When you purchase, you purchase at Full Market Value, determined by appraisal at the time of purchase. You also get the FULL TAX BENEFITS (mortgage interest deduction) of homeownership while you're "renting". Try that with any other type of R2O or Lease Option!

Here's an example of a real deal that I recently did.

House is worth $230k. Payments of $2050/mo PITI. Lease term of 36 months.

The RBs (Resident Beneficiary/Tenant) "NET" monthly payment over that 36 months if he is in only a 30% tax bracket is only $165.28 per month.

$2000 per month X 12 mo. = $24,000 (off taxable
income)/ 30% = $7200 more cash in his pocket per year

$7200 X 3 years = $21,600 + his net profits of $34,750 (50% of appreciation) + return of his initial contribution of $11,500 = $67,850

$67,850 / 36 months = $1884.72 per month. $2050 per
month - $1884.72 = $165.28 net montly payment.

Now, I don't know about you, but where can he go to
get a payment of $165.28 on a $230,000 house?

I know this is a VERY long post but this is an important decision for your family. Contact me if you'd like more info. I work with a network of investors who use this system daily. If I'm not in the area you want to live, I may be able to find you a home through another investor.

It can be a good idea. However, it all comes down to the terms of the agreement. If the terms stink then no.

if you do not have great credit and that is the only way to get a home sure or if its easier.. just make sure of interest etc.. get the contract and have a real estate attorney look it over and give suggestions... just make sure the contract is up to par!

Good Luck!!

possibly, but make sure you check the escape clause regarding terminating the agreement. If a portion of your rental payment is going toward purchase, it should be held in a separate interest-bearing account -in your name.

Also, make sure the owner will assume basic landlord duties during the rental period such as taking care of major repairs, properly insuring the property, and paying the taxes & mortgage (on time!!!)

I have done this in the past with great success. However, I would advise that you spend the money to have the contract reviewed by an attorney before you sign it. Make sure there is no "fine print" you've missed.

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