Rent-to-own programs often offer amazing deals for those who want to buy a home but just can’t qualify for a conventional home loan right now but are they a good move for owners and investors?
If you have talked to any number of real estate agents about properties you own at least one or two has probably suggested that you offer your properties on a rent to own basis. This of course makes it easy for them move your property and make a commission but is it a smart move? Other investors are doing it and many swear that it is the best way to move real estate investing deals faster in this market but are there dangers no one is talking about?
Running rent-to-own programs can be a very attractive option for real estate investing companies. It certainly drives in plenty of inquiries and new leads. It can be a fast way to get your properties occupied and put in tenants who will theoretically take on more financial and maintenance responsibilities which can increase profit margins. However, there are disadvantages.
For a start it means locking into long term agreements. Often it means committing to lower prices than you could get later and reducing your exit options. Poor quality tenants can also be an issue that cause real estate investing companies big issues down the road. After all there is a reason why these renters don’t qualify for home loans right now.
You also have to ask how solid this real is as a real estate investing exit strategy. Are you really being realistic about how much down payment to ask for? Many of those new to real estate investing see others asking for 20% down or other large figures and think that they can too. Remember that just because another real estate investing company is advertising something, it doesn’t always make it a good idea or mean that it is working for them. If these prospective tenants had that kind of money, don’t you think that is most cases their credit would be good enough to get a mortgage too? Plus you need to know your state laws regarding equity. This could give your prospects and equitable position in your property, technically making them part owners right away, making it excruciatingly painful to evict them even if they don’t hold up their end of the deal. With great cash flow is it better to hold for a couple years then sell while retaining max flexibility?
There are many benefits of rent-to-own for buyers and real estate investing companies alike but make sure you know all of the pros and cons.