Rent-to-own, what are the pros and cons, and should you do it? Hi, my name is Gigi. I’m a real estate agent in South Florida. I’m very excited to talk about today’s topic, which is rent to own and the main pros and cons of a real estate agent. I received so many calls almost every week, people asking about rental options if I have any of them and help them find the rent to own homes.
so I hope this article might be beneficial to many of you and to answer your question should you do it or shouldn’t you do it and why so let’s start with the pros; first of all, this quick process once you find your rent to own house, you can move in right away there is no long process of waiting a month or two, so it’s swift so that that’s a good thing and then it gives you time if you need to fix your credit if you need to establish your job employment history you know you win some time because you eat whatever you agree with the owner it gives you 1 or 2 years until you ready to get your mortgage and meanwhile you can still kind of own at home and do your repairs if you want and then you also have the lock you lock in the price if you are agreed to buy a house in 2020
And then officially, you will take the title and become a homeowner of that house in 2022. You will pay the price that you agreed today in 2020, and in many places, appreciation goes higher, so when you buy in 2022, you might be able to get a perfect house, and in that day, the appraisal it might appraise for way higher than you agreed two years ago now let’s talk about some cons so, first of all, it’s the deposit or option fee so before you move to your rental homeowners will ask for deposit or option fee which typically goes from 1 to 10 percent of the purchase price and at least in South Florida most of the time I see at least 10%
so recently I saw a house that is worth 250 K and the owner was asking for 25k to do the rental option and to deposit up front maybe sometimes you can treat to 1% I would say typically typical is maybe 5% which is still an immense amount it’s as much or even more than your down payment if you will do FHA loan sometimes even conventional and the most important part it’s non-refundable you will not get this money back if you won’t buy the house now if you buy the place it will go to your purchase price but not many people end up buying the home and so many people end up losing their money and we will talk shortly wise and another con is conflict of interest so here’s how it works so once you agree rent-to-own you kind of feel that you are owner and the owner will push all maintenance on you so and you are allowed to do repairs so you are kind of home owner but officially the title is still on the previous owner so if things happen like a major expenses like you need to fix a/c and cost thousands of dollars and then you might have conflict with the owner even if your contract it says that you you are responsible for all the repairs but there are laws that protects you and the owner still might end up fixing a scene because of the other laws doesn’t matter
what it says in your contract many those little things when it comes about homeownership it’s difficult to decide it’s which either you need to do it or the owner I’m talking about the taxes and violations and liens, so it is a there might be lots of conflict of interest in this case and the most important part is the risk once you’re doing rent there is a huge, huge risk in typical home buying process before you buy the house, and you close on the house you do a lot of work like inspection appraisal title search and mortgage pre-approval, and in this case, you skip all those steps so how do you know the title is clear maybe someone from the past owns it or there are some liens on the house, and it has lots of violations it might have open permits it the house might be done
not by the permits, and you might never approve or qualify for that mortgage that you must be approved by the end of your term, and the house might never appraise for the price that you agreed, so you will never get a loan for the house if the house is not paid off and owner have a mortgage if he decides to stop any mortgage the house might go to foreclosure and bank might not honor your rent to own contract also we have a huge risk losing that big fat deposit that you left before even you moved to the house and if you talked with the other owners or investors and you asked them how often the people end up buying that house rent-to-own you’ll be so surprised that like 90% of the time people never end up buying the homes and they end up losing their deposits
so it’s extremely extremely risky so it’s very very important before go to any rent to own contract to talk with a real estate attorney ideally with the one who already have experience with rent to own so they can advise you even with real estate agent or attorney they can help you to put some contingency like contingent on appraisal contingent on the clear title contingent on no violations and contingent maybe you being approved for that mortgage so it protects you and there are it’s sad to say and this is actually true there are many many others who try to take advantage of the system and you know they won’t be upset that if you will not be able to buy the house and you will loose your deposit that might be their main goal and reason why they doing rent to own options so it might be awesome idea and awesome deal if you do with the right people with the right team you do your own homework you might do your inspection or appraisal even before I go to rent-to-own option this might be ideally and it might go really bad and horrible if you do it with the wrong people, it might go really bad and you’re taking a lot of risk in this case also there are not so many houses to choose from who do rental options so you your end up with very limited options versus if you’re planning to buy a house in regular way there’s so many houses you can choose from also most owners will take advantage of the rental system and they will charge you an extra for that and premium for that house you’re about to pay which is worth way less or if you be pre-approved for a mortgage for the same amount you might get a bigger house a little bit better location or even a little bit more updates most owners don’t do it because they have a good heart and they want to help you even though they try to recommend you a good credit repair company or mortgage lender that at the end of the day
Their main goal is to keep that big deposit, and then after you move out, they’ll find another family with the same strategy with the same idea. Another very important fact usually when you buy a house, owners are motivated to sell it, so if there are open violations, our owner needs to fix something so it will pass the inspection or appraisal. They are willing to do that because they want to sell the house now in your rent on the agreement. They might don’t care because they already got their deposit, so they don’t care if you end up buying a house or not, and they might even benefit more if you won’t end up buying the house if you ask the owner to fix something so to be approved for appraisal or for a loan or to fix those violations they might don’t care they might don’t do it.
So if you have a chance to do a regular way, it’s way way more safe for you, and you will end up getting a better price and having more options to choose from. That’s my opinion, and it might be an excellent deal if you find a perfect people to do this, and you do your homework, so think about it and do your homework before, especially with a real estate attorney who knows what they do and how to type up the contract to protect you thank you for watching I hope you enjoyed this article if you have any other questions please leave them in the comments below I will be happy to answer them thank you so much and have a wonderful day .