Rent to Own vs Renting

10 Replies

Hi,

I see so many people doing rentals, but I haven't crossed so many doing rent to own.

I would like to have some input. From my point of view doing rent to own or lease to purchase would be the most beneficial.

Why would I just rent and be stuck with all of the repairs when I can help someone out and make 10 % interest on a 30 year mortgage with little responsibility?

Is there a bigger tax break on rentals? It's been my experience in the past that tenants do a lot of damage, almost enough to nullify profits. (1 property)

My question is what am I missing in benefits of renting vs rent to own or lease with option?

-Thanks in Advance for any input.

I looked into the pro's and con's of rent to own over the years and this article describes it succinctly: Rent to own pros and cons

I'm in NYC, where appreciation is tremendous, so I'll lose out on the upside. The other is your buyer is the owner, and if he decides the deal is not to his benefit, drops out, he can hand you back something that needs extensive repairs.

The other big issue is buyers often have bad credit, and if they drop out, you'll have to start all over again.

Thank you, I will take a look.

I understand your point on the property appreciation, but if I'm creating a note with 10% interest on a property, the interest makes up and can even supercede the amount of appreciation over a 30 year period.

Let's say I create a note for 76000 at 10% interest. The monthly payments  (not including tax/ins) would be about 650 over a 30 year period. That adds up to over 230,000.00. I don't foresee the likelihood of the property appreciating to that total value.

People who rent to own usually take better care of the property than renters, if they don't, I can still run into that problem renting the property out. (I have before) 

What are your thoughts on that? I'll read the article. Thank you. 

@Shannon Guertzgen

Rent to own isn't what you think it is.

It's just a lease with an option to buy. The option sets the purchase price and is nonrefundable. The option periods are usually 2-3 years.

Most people that look to rent to own are dreamers that either don't have the credit or the down payment to buy their own house.

Rents are usually at a premium. So, with the option money and the higher rent, most people never actually buy the property.

We wont rent single family homes.  Always seller finance to get the down payment, no repairs, and lower property tax.

Another benefit is a longer lease, then.

@Jason Dillard

Do you have people following through on your deals or do they back out? If they back out what condition do you usually find the property in? Do you have to do a foreclosure? What's that like compared to an eviction? 

 What kind of down payment do you ask for and usually get?

To me this only makes sense unless it's a multiunit property. 

@Shannon Guertzgen rent to own is our model but we call it a lease with an option to buy as @Christopher Phillips pointed out. You need to be careful though, because of the Dodd-Frank act, unless you are a mortgage broker you can’t create very many mortgages in a years time and if you create an agreement that looks like a mortgage such payimg down the mortgage, then you could receive hefty fines.

Make sure your documents are written correctly and that the lease and the option are separate documents and this strategy can be a very lucrative strategy. 

Thank you. I'll further look into seller financing. Would getting a mortgage broker liscense, or hiring an attorney or mortgage writer make a difference? 

I will further look into this. 

@Shannon Guertzgen Yes hiring a mortgage broker could make a difference, but I would Consider just doing the lease options over doing a seller finance deal. The evection process is much easier than the foreclosure process and you can do lease options for however long you agree upon until they can get their credit to where it needs to be and then they can buy the property.

Thank you, Shiloh. I spoke with one of my buyers today and he does lease option with mobile homes. This has been a successful endeavor for him, because he buys the parks, too. Our conversation was inspiring and I see now what everyone is saying for the most part with a lease option.

Thank you

Hi @Shannon Guertzgen , if you have any more questions feel free to send me a message! 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.