Rent to Own Properties Done Ethically

As a rent to own properties investor, your goal should be putting people into houses and turning renters into homeowners. A ‘few bad apples’ give the rent to own investment strategy a bad name, which is a shame, because it is a great strategy.

I don’t believe in the strategy of repeatedly churning rent to own properties to collect multiple option fees from multiple potential buyers(sometimes it just happens). Instead, when done correctly, the rent to own properties strategy is a win-win for both the buyer and the seller. By doing this ethically, most buyers complete the purchase, your good reputation grows, buyers tell family and friends, with more deals flow to your business.

Rent to Own Property Buyers Need to Understand the Details

For the rent to own properties strategy to work best, potential buyers need to be confident that they’ll be ready to make the purchase when the lease term expires.

If the purchase isn’t completed, they’ll have paid substantial nonrefundable option money with nothing to show at the end. That becomes what they tell family and friends.

Buyers need to read and understand every word of rent to own property contracts and know exactly what they’re getting into. These are not standard purchase agreements. Each one is unique. These people may not have ever purchased a home before. Sellers should encourage buyers to seek the help of a qualified attorney. A qualified real estate attorney who clarifies the contract and their rights, before signing anything.

If they decides not to or can’t purchase the property at the end of the lease, the option simply expires. If the wording is ‘lease purchase’, without the word ‘option’, the buyer could be legally obligated to purchase the property but have not ability or desire to do so. Clarifying the wording is one of many reasons buyers should have the contract vetted by a real estate attorney before agreeing to it.

Rent to Own Properties Offer Buyers Many Benefits

Most tenants considering rent to own properties don't think they can qualify for a mortgage.

The fact is that many won't. But today is the time to learn what it takes to qualify in the future, maybe in 2018. Interest rates remaining near all-time lows means that mortgage payments are also at all-time lows.

Myself and other real estate experts fully expect home prices to continue appreciating in value. That means home affordability is more attractive today than it will be for the foreseeable future. Not being able to qualify for a mortgage today doesn't mean you can't lock in the best purchase opportunity that you may see during your lifetime.

Best Place To Start

Granted, sellers of rent to own properties often sell for a premium price. That should NOT keep buyers out of the market, especially when they are close to qualifying for a mortgage. Locking in the sales price of an appreciating rent to own property possibly means the sales price today will be at, or below, market value when the deal actually closes.

The best place to start is by achieving the FHA loan prequalification essentials:

• An established steady employment history, at least two years with the same employer.
• Consistent or increasing income over the past two years.
• Your credit report should be in good standing with less than two 30-day late payments in the past two years. The minimum FICO score can be as low as 500 (subject to change).
• Any bankruptcy on record must be at least two years old with good credit for the two consecutive years.
• Any foreclosure must be at least three years old with good credit for the past three years.
• Mortgage payment must be approximately 30 percent (or less) of your total monthly gross income.

If you can answer YES to these statements, you should have no problem qualifying for an FHA home mortgage loan. If not, rent to own properties allow you to work towards these goals over the next couple of years with a purchase price locked in today.

Rent to Own Properties Have Flexible Contracts

Buyers should treat rent to own homes as any other purchased agreement. They should have an appraisal done and have the home inspected before signing the final contract. Then the buyer needs work with a mortgage broker to develop a plan enabling them to qualify for a mortgage before the option period expires.

By working with real estate professionals, including an attorney, rent to own properties can have contracts drawn up to satisfy both the buyer and the seller. The seller no longer has a vacant house to deal with. While the buyer is able to overcome down payment and mortgage hurdles.

Length Of Purchase Option Flexibility

Part of the flexibility that comes with rent to own property contracts is the length of the purchase option. These typically range from one to three years. If the seller wants to cash out of the deal asap, they will want a short option period. If the buyer needs more time to repair their, or increase the down payment, they'll want a longer option period. In some cases, the seller decides to carry the financing after finding the buyer is reliable about making monthly payments. There are significant tax advantages for the seller when they takes installment payments versus a lump sum. This is particularly true when it’s an investment property rather than a primary residence.

Rent To Own Properties Conclusion

Rent to own property agreements are among the most flexible real estate contracts available in this dynamic market. This article only covers some of the options and requirements. I have many other articles available and strive to keep information about rent to own properties current with today's market.