The Truth About Every time the market heats up you'll start to see signs on street corners advertising rent-to-own or lease purchase homes.  Many buyers are attracted to this option because it presents itself as a way to buy a home with less out of pocket expense than traditional.   Unfortunately, most of the time things are not as they seem with "rent to own" homes.   While occasionally there are good deals out there, the entire lease-purchase industry has a bad name due to the scams, fees, and expenses you may not know about ahead of time that can put you in a bad spot long-term.

Times Where You Can Look Into Rent to Own Opportunities

The idea is simple.  A home seller wants to sell their home and instead of selling it outright, they offer it for lease with an option to buy it at a later. In theory, this means that you can slowly pay off a home, much like renting, but when your lease is up, you own the home instead. They are similar to a mortgage, but you can opt-out without the same dangers as walking away from a mortgage.   So what's the catch?   

Most of the time the seller of these homes are investors.  They know that they can sell it on the open market and they know that people who look for "rent to own" homes might have already been turned down for other options.   There are groups of people that like to rent and would pay a premium for the opportunity to purchase.  Take professional athletes as an example.  They may be in a city for a short time but who knows if they'll get traded or worse, cut.  In these instances, an athlete might choose this option because if they get traded they can easily get out of the deal without having to sell the home.   If they get an extension, then they could just purchase the home.  

Why is Rent to Own a Bad Idea?

You Pay More

Typically, if the seller is offering you something special then they need to see some benefit.  Most of the time, lease purchases have a clause about the price being over the market.   In addition, they stipulate how much if any of your rent goes to the mortgage.  This means you end up paying more than you would if you had a mortgage. Many of the offers you get from rent to own landlords also require a fee to start the contract, which you will not get back if you opt to back out of the agreement down the line.

One Mistake Could Ruin All Your Hard Work

One of the biggest reasons to be leery before signing a rent to own deal is the terms. Many people put a stipulation in their rent to own contracts that if you miss a payment, it can cancel the deal. This means that even a single missed payment can negate everything you put towards the house. They may also put the option of getting back on track after a missed payment for an additional fee. This means that you once again are paying more for that type of contract than you would on a mortgage.

Hidden Terms

Some of the lease-purchase contracts have price escalators, rent attribution forfeiture, and other "gotchas."  In some cases what this could mean is that the price is outside of your ability to purchase.  For example, let's say a rent-to-own has an agreed-upon price upfront that is 5% higher than the market rate at the time of the agreement.  If the market goes down, you might have a hard time getting an appraisal.   You'd be better off buying the home next door or buying a brand new home at Charles Cove by DR Horton & Express, than accepting this deal.   However, you've been paying more in rent and likely put a little money down in order to secure an option.   All that money would be "wasted" if you abandoned the deal.   

The Truth About Rent To Own Homes

Rent to own homes usually just end up being a really expensive way to rent a home.  If you're in a situation like an athlete or a first time home buyer, just rent somewhere as cheap as you can and save. Use that money for a down payment on your home to make it into something that is perfect for you and your family. Call us to find out more!


Posted by Florida Realty Marketplace on
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