Why I Absolutely Hate Rent-to-Own Agreements for my Customers

I have customers ask me numerous times a week for rent-to-own or lease-to-own properties in order to become a homeowner. I give the same answer every time—I do not recommend renting to own.Rent-to-own sounds so great! The way it works is that the customer can pay a bit extra each month and get a mortgage after a set amount of time to purchase the home. Unfortunately, it almost never ends up working that way. What is a Rent-to-Own or Lease-to-Own Home? Sellers will sometimes agree to rent the home with a special agreement (drafted up by a lawyer) that allows the tenant to purchase the property. How Does Rent to Own Work? The seller and buyer will hire an attorney to draft up the agreement. There are a number of points that need to be clarified in the document. Purchase Price The renter and seller agree to a purchase price for the home that is due at a future date. Monthly Rent Payments This is the first problem with a rent-to-own home. The rent will be inflated because a portion of each rent payment is set aside by the seller as the down payment on the home. Lease term The renter and seller agree to the length of time the renter has to purchase the home. It can be in a matter of months or sometimes years!Home Repairs and Maintenance Some sellers will want the buyer to pay for any repairs or maintenance needed while they are renting the home. This point, like others, can be negotiated. The Risk of Renting to Own The reason I talk every one of my customers out of renting to owning is because of the high level of risk that is on the renter/buyer. So many life events can happen that will cost the buyer a small fortune. Plus, the buyer can be set back months or years toward the goal of home ownership. Buyer Cannot Obtain Financing This is the number one problem. When you sign the lease-to-own agreement, you will agree on an amount of time that you have to build your down payment and purchase the home. What happens if you get to the end of the agreement and you suddenly cannot get financing? Divorce, medical bills, lost employment and literally hundreds of other events can cause you to not be approved for financing. What happens to the extra money you have been paying toward rent? That will likely go straight into the seller’s pocket. The Home Suffers Damage We live in Florida where hurricanes are a very real possibility. Although the lease-to-own agreement will address the possibility of something happening to the home, the buyer still carries the risk. Disputes can occur if the seller’s idea of repairs aren’t in line with the buyers. Who fixes problems? At the end of the term, this could cause a buyer to no longer want the home. Changes in the Real Estate Market At the beginning of the lease-to-own agreement, buyer and seller will agree to a purchase price. What if $300,000 is an agreeable price today, but the market shifts and the home is suddenly worth $250,000? Are you, as the buyer, going to still go through with the purchase and buy an overpriced home? If not, you will incur financial damages. The Buyer Decides She Doesn’t Want to Buy This Home It happens a lot! If you’re offered a better job in a different town, are you going to turn it down because you’re in a lease-to-own agreement? What if your family grows and this home is no longer ideal? We could make a list of what-ifs and the answer is the same—these events will cause the buyer to not want the home. What Happens if the Buyer Doesn’t Want the Home? This is the big question. The renter simply walks away from the home… and her money. Remember those rent payments that are much higher than the going rate because a portion is going to the down payment? Well, if you walk away from the home you’ve walked away from your down payment and given all of that money to the seller. What Can a Buyer Do Instead of Rent-To-Own? It is very clear that the cons outweigh the pros on this issue. This is why I will never let a customer of mine enter a rent-to-own agreement. Yes, I get paid by helping them enter that agreement, but I’d rather not have that commission if it means the buyer is taking on undue risk. What to do Instead of Rent-To-Own Hire a trusted agent that will not mislead you. You can still buy a home, but do it the right way.In the rent-to-own process, you’re paying the seller extra rent every month, so why not pay yourself that amount? Find a great home that you’ll enjoy renting and one that is hopefully well below your monthly housing budget. Then, open up a money market account or similar and deposit that extra money into the account. Treat it as untouchable money—that is, if you were paying the seller you wouldn’t be able to get the money back, so why should you touch it if it is in your own account?Once you have saved up enough money to purchase (usually only 3.5% of the purchase price for a down payment), call us and buy a home the traditional way! In doing so, you do not put your hard-earned money at risk and when the time is right, you’ll be able to purchase the home of your dreams without the excessive risk. Have a Question? Ask away! Please leave your questions in the comment box or contact us.

It's all about the math: Flipping a house is primarily a numbers game. Before diving into a flip, conduct thorough market research, analyze the potential costs, and estimate potential profits. Ensure that the purchase price, renovation expenses, and potential selling price align with your financial goals. How much can you sell it for? Determining the potential selling price of the flipped house is crucial. Research comparable properties in the area, consult with real estate professionals, and consider market trends to gauge the achievable sale price. Aim for a selling price that allows for a profitable return on your investment. Location, location, location: The location of the property plays a significant role in the success of a flip. Choose a desirable neighborhood with amenities, good schools, and a strong housing market. Properties in prime locations generally have higher resale values and attract more potential buyers. Time is of the essence: Flipping houses requires efficient project management. Develop a realistic timeline for the renovation process and set milestones. Remember, the longer the renovation takes, the more carrying costs you will incur, potentially eating into your profits. Your contractor is key: Selecting a reliable and experienced contractor is crucial to the success of your flip. Thoroughly vet contractors, check references, and obtain multiple quotes. A skilled contractor can ensure quality work, timely completion, and adherence to your budget. Focus your renovation dollars in the right places: Not all renovations yield the same return on investment. Prioritize improvements that will add value to the property and appeal to potential buyers. Focus on kitchen and bathroom upgrades, curb appeal enhancements, and fixing structural issues. Always remember your target buyer: Consider the preferences and needs of your target buyer when planning renovations. Tailor the design, finishes, and amenities to attract the desired demographic. Understanding the target market will increase the chances of a quick and profitable sale. Permits, permits, permits: Ensure that all necessary permits are obtained for the renovations. Skipping or overlooking permits can lead to legal issues, fines, or complications during the sale process. Adhering to local regulations and building codes is crucial for a successful flip. There are no guarantees: Flipping houses comes with inherent risks. Market fluctuations, unexpected expenses, or delays can impact your profitability. Be prepared for unforeseen challenges and have contingency plans in place to mitigate potential risks. Flipping houses is a second job: Flipping houses requires time, effort, and dedication. Treat it as a second job and be prepared to invest considerable time overseeing the project, managing contractors, and handling the logistical aspects of the flip. Have a plan, a budget, and stick to it: Create a detailed plan for the renovation, including a budget for each aspect of the project. Stick to the budget and avoid overspending on unnecessary upgrades or materials. Diligent financial management is essential for maximizing your profits. Work with a REALTOR who has experience guiding people through the flipping process: Partnering with a real estate agent who has experience in the house flipping market can be invaluable. They can provide insights into market trends, assist with pricing strategies, and guide you through the selling process, maximizing your chances.

Many buyers assume that they do not need an agent for a real estate transaction with new construction. The truth is that it is one of the most critical times to have a real estate agent representing you! Here’s why: #1: You need representation. The builder is using a professional agent to represent him; you should bring professional representation as well. You do not want to be in the position where you don’t have your own confidential agent fighting for you. When the builder starts pushing your move-in date back, your agent is picking up the phone to negotiate. You’ll have more leverage if you have your own, private representation. #2: It’s a real estate transaction. Many people assume that building a home is a different type of transaction. In truth, it’s a real estate transaction where the builder is selling you the property once it’s completed. There is no reason to treat it unlike any other buyer/seller relationship. You want to set the tone with the builder that you have a professional on your side that is watching for anything that may seem iffy. #3: You have someone managing the whole process from start to finish. I was able to negotiate thousands off of the price as well as upgrades throughout the home here in Raffia Preserve. Speaking of move-in dates, how about the whole list of meetings and deadlines leading up to the closing? Don’t get caught in a legal nightmare because you missed submitting certain paperwork. An agent monitors the entire process and makes sure that everyone is meeting the deadlines set in the contract. Your agent will also make sure that the builder is consistently giving you documents that are legally required by certain deadlines. #4: Negotiation secrets. Builders will rarely negotiate on price for new construction. As a buyer without representation, you might just walk in and accept that. What REALTORS know is that there are hidden gems that you can negotiate for like upgraded countertops or even a pool! #5: The construction manager. His whole job is to get the job done in the interest of the builder. Before the closing, the buyer will need to do a walkthrough with the construction manager. This is where you need a professional who has done walkthrough after walkthrough of new construction and knows what to look for. So many things can slip through the cracks! #6: Need to get out of your contract? Things happen and real estate deals fall through. You’ll need an agent who knows the laws and can get you out of a contract that is no longer in your best interest. #7: It doesn’t cost you a penny! You’re not paying the agents in the transaction. The seller is paying the agents. You get free representation. Don’t forego your biggest asset in the deal!