How Rent-to-Own Can Steal Your Money and Time
You have probably heard or seen advertisements for rent-to-own on the Internet as a potential solution to the problem when you cannot afford to buy a house, but you probably have not heard how they were used to trick many people into wasting money, time . , and efforts to create a home that never became their home.
What is a lease to purchase?
A lease-to -own is a special type of agreement in which you plan to own the house after the time agreed with the seller. Think of it like renting a car, which gives you the option to buy it right before the end of the lease. If everything is done correctly by both parties, the deal can be beneficial for all participants. However, there were a few losers in the rental-to-own market who took advantage of the many people who were looking to become homeowners.
What are the risks?
Most residential rental agreements are much less forgiving than the regular lease or lease-to-buy agreements we are used to. People sign contracts for acts when the buyer buys an agreement for the act rather than buying the act itself. If the tenant fails to comply with all the details of the document to the letter, the contract will be violated, and the seller has every right to evict you and keep all the shares that you have invested in the house.
According to a 21-year study by the Texas Department of Housing and Community Affairs, less than 20% of potential buyers became homeowners. Nearly half of them defaulted on their payments and their contracts were terminated.
According to a recent report from The Atlantic , many of the failures associated with cheating in a lease-to-own situation stem from a lack of understanding of the process. Since many tenants think that the house will be theirs, they usually “invest” a lot of money in the house in order to improve it. This is usually the case because many houses for rent are “refurbishment”, that is, they are not in the best living conditions. In this case, tenants may miss payments and therefore violate their contracts. You end up with a really nice house that still belongs to your landlord and a big hole in your pocket.
How to rent out:
- Read the contract. As elementary as it may sound, it cannot be emphasized. Make sure you understand the parameters you are being asked to work with and understand what sanctions are in place if you violate them. Some things to include in your contract are the price of the house, the cost of rent, and a set deadline for when you can buy. Make sure the contract specifies what percentage of the rent will go toward buying the house and how those payments are to be made.
- Follow the wording of the eviction. Make sure the conditions don’t put you in a position where you could easily be evicted, especially after you’ve invested in your home through repairs, improvements, or equity investments. If you are evicted, make sure that you are somehow compensated for your contribution.
- Ask a lawyer to read between the lines. It goes without saying that most of us are not trained lawyers who know how to read a technical lease agreement. Spending money on getting someone to look at it and get their feedback will be worth the investment considering you are entering into a multi-year contract that will cost you thousands of dollars.
- Watch out for home loans. Once you know you’ve reached the agreed time when you can buy a house, get ready to purchase a property with a mortgage. Thus, you get rid of the risky lease-to-own agreement and become the owner of the house.
Rent-to-own can be a great option for people who want to be homeowners but can’t compete in their market or qualify for conventional mortgages. This might seem like a good option for achieving the American dream, just make sure you don’t sign a contract that will make you live the American nightmare.