Rent-to-Own or Lease/Options can be full of problems.
Rent-to-Own or Lease/Options have been an option to acquire a house or home for a long time.
The premise is very simple. The buyer rents or leases the home for a set period of time (1 to 2 years) while the buyer fixes the problem that kept the buyer from qualifying for a loan. When the buyer can get a loan, the buyer buys the home.
The contract usually requires the buyer to provide some non-refundable “Option Money”. Often the buyer pays over market rent and the seller rebates that extra amount along with part of the fair market rent for the buyer to use for their down payment or closing costs at the purchase.
There are many other variations but these are the basics. Rent-to-Own or Lease/Option can be a great program when they work. They are ideal for people who are self-employed and do not have 2 years of tax returns to qualify for the loan. It also works for people who have had a Bankruptcy, Foreclosure, Short Sale or just bad credit.
There are two major problems or drawbacks with Rent-to-Own or Lease/Option contracts.
Problem 1: Lack of available properties.
The seller has to be willing and able to rent or lease the property for 1+ years. They also have to be willing to set a price today that may be high or low at the end of the option. If it is too high, the buyer may back out. If it is too low, the seller left money on the table.
In the San Diego Multiple Listing Service (MLS), there are currently over 8000 houses & condos currently for sale. Of that number, only 45 of them state that they will entertain a Rent-to-Own or Lease/Option. That makes it a real challenge to find a home that the buyer likes when only ½ of 1% is of the listings would even consider it. Then you still have to compete with the traditional buyers with loans or cash who want to buy that home now. Often a Rent-to-Own or Lease/Option buyer would have to give the seller a higher price to sweeten the offer. In the last year, the MLS shows that over 31,000 homes sold and only 2 used a Rent-to-Own or Lease/Option. This is pretty high odds against a Rent-to-Own or Lease/Option working.
A second source to find a Rent-to-Own or Lease/Option is online on Craigslist or a For Sale By Owner site. Now the “Wild, Wild West” can arise and it is buyer beware. The buyer will usually not have the assistance of a Realtor to guide them. Most of us have heard the scary stories of land sharks and criminals on Craigslist. As a percentage, it is probably very low but still dangerous.
Problem 2: Short Time Frames
The problem arises when the seller does not qualify the buyer to make sure they can buy within the Rent-to-Own or Lease/Option time frame. The sharks (and the legitimate sellers) usually want a 1-year Rent-to-Own or Lease/Option. It usually takes longer than that to become qualified. This is where the Rent-to-Own or Lease/Option scam comes in. Land Sharks preying on people who were down on their luck and just starting to get back on track.
The seller gets $10K to $20 up front, charges a higher rent with the promise to give the overage and more back in a year. The tenant moves in, is responsible for all the repair work and fixes up the home, thinking that they will be owning it soon. One year later the seller tells the tenant to get the loan or leave. Most of the time the shark seller picks someone they expect will not be able to perform…There goes the dream and the money!!!
For awhile, there is a new type of Rent-to-Own or Lease/Option available that eliminates both of these problems. this group of investors who are willing to buy homes for CASH and Rent-to-Own or Lease/Option them back to the future buyers for up to 6 years is no longer doing this program.
If you, of someone you know, are self-employed, have had a Bankruptcy, Foreclosure, Short Sale or just bad credit, and would like to Own and start on the path to homeownership today, contact Dennis Smith at
RE/MAX BY THE SEA. 760-212-8225.
Dennis can recommed a lender with no down (besides VA), low down and even down payment and closing cost assistance programs depending on which you qualify for.
If the credit score is the problem, he can recommend a DIY program that works well or a person who, in many cases, can rewrite many parts of your credit history. It is a little more expensive but quicker and more through.
This information is brought to you by:
Dennis Smith, ABR, SRES, e-PRO, CDPE, Realtor® CalBRE# 00476662
Sunshine Smith, SFR, Realtor® CalBRE# 01249837
760-436-0087 or cell at 760-212-8225
Providing quality Real Estate services in the North Coastal San Diego area including Del Mar, Solana Beach, Rancho Santa Fe, Cardiff by the Sea, Encinitas, Leucadia, Olivenhain, Carlsbad, La Costa, Aviara, Oceanside, Vista, San Marcos, San Elijo Hills, Escondido; all San Diego County.