Rent to own?

[Holy-Smokinen]

I had mentioned on another thread that we were selling our home, we're in no rush as our other place isn't ready until September so before getting a realtor we just threw it out there on welist and word of mouth. We've had a lot of traffic and even a few offers (low ones) but we did get an offer from a lady to do a "Rent to Own", she's going through a divorce and thought it might take up to year before she can buy from us? Any tips, advice, much appreciated? I know this was discussed in other threads before but I never really paid much attention, I have no idea what a rent to own is or how it works. Thanks so much.

[guzzy]

I think you shold stay away from this. By all means, rent to her but don't do some rent to own. If you do make sure you only apply 25% or so of rents towards the downpayment of your house.

[Winsor_Pilates]

Don't do it, especially since you wrote "I have no idea what a rent to own is or how it works"

[Jedi Ninja]

It mean you'll be carrying two mortgages and taking on double the property ownership risk. Don't do it.

[CGYTransplant]

Just wait until you find someone who will/can buy the house outright. With rent-to-own, or an assumed mortgage you are still ultimately on the hook for all expenses and mortgage-related responsibilities if the new owner can't follow through. For the seller, advantages are very limited.

[Holy-Smokinen]

Well that makes my decision a lot easier! Thanks so much for all the awesome info.

[CrusaderPi]

If done correctly these sorts of things can make you a ton of passive income. I'd consider it, but only if you can find someone experienced to help you out, or act as a middle man.

[Deegee]

Rent to own could be a fairly strong move for a seller in a depreciating market.

In this instance the purchaser and the seller would enter a contract where the purchase price is agreed on in the contract. As the person rents, they build up the down payment by a portion of the rent going towards the down payment.

The contract will detail when the renting ends and when they go get a Mortgage for the remaining balance.

An obvious risk is that a default by the renter could put you in an unconfortable situation because as mentioned above you would be forced to carry two mortgages (the old one until the purchaser buys it from you and the new place you buy).

I have not handled any of these personally, but I would suggest that it would be in your best interest to have a lawyer draw up the contract to make it valid and enforcable.

[nickerjones]

dont mean to derail your thread as i have a similar situation i have a ? about. My wife and i bought a house new in a gated community in Branson 2 yrs ago. The guy who built them and owns the edition is the same guy. We talked him into buying the house back with us losing like 10k from what we paid. Its ok since we put 30% down on the house. Well he was supposed to buy it back in Oct. He couldnt get financing , which i found weird. Anyway so he paid rent until this month and it came off the sale price.. he has put 13,000 or so in it, but still cant get financing. I got pissed and told him he is going to lose his money if he cant come through and i would just rent it out til we found a buyer.

He got aggressive real fast and said he cant get financing but he has enough to pay off what we owe on the house, but he would have to make payments on the other 40k for a year at 6% interest and he would make the final ballon payment no later than 1 year. Im not sure how this would work. I mean , does this mean i would keep the deed or w/e until he pays it? He keeps saying he will give us the 150k and we will close the house and he will make the rest of the payments.... Doesnt that mean he would then have ownership of the house ? That kinda sounds like it would open me up to getting screwed out of the 40K...... Anyone ever had any experience like this?

[Deegee]

Originally Posted by nickerjones

dont mean to derail your thread as i have a similar situation i have a ? about. My wife and i bought a house new in a gated community in Branson 2 yrs ago. The guy who built them and owns the edition is the same guy. We talked him into buying the house back with us losing like 10k from what we paid. Its ok since we put 30% down on the house. Well he was supposed to buy it back in Oct. He couldnt get financing , which i found weird. Anyway so he paid rent until this month and it came off the sale price.. he has put 13,000 or so in it, but still cant get financing. I got pissed and told him he is going to lose his money if he cant come through and i would just rent it out til we found a buyer.

He got aggressive real fast and said he cant get financing but he has enough to pay off what we owe on the house, but he would have to make payments on the other 40k for a year at 6% interest and he would make the final ballon payment no later than 1 year. Im not sure how this would work. I mean , does this mean i would keep the deed or w/e until he pays it? He keeps saying he will give us the 150k and we will close the house and he will make the rest of the payments.... Doesnt that mean he would then have ownership of the house ? That kinda sounds like it would open me up to getting screwed out of the 40K...... Anyone ever had any experience like this?

You'll forgive me as I have not dealt with many gated communities in my lending background as it is primarily based in agricultural and rural Alberta, so I am not sure about the how their ownership specifically works, however I will try and provide an example using some of the numbers you provided that you might be able to use in your situation if it was just a standard house you were selling.

Let's say you are going to sell him your house for 190K.

First off I think what he is suggesting means is that he will have title on the property, however you would have a private 40K interest only loan secured against the property by way of a private Mortgage.

Let me say that 6% is a steal for a private Mortgage and there's no way you should be that generous. I have seen them range anywhere from 6% to 16% depending on the risk involved.

The fact that he "has" 150K ready to pay you and then can't find financing elsewhere for the 40k is extremely curious to me. I can't think of a lender that wouldn't be all over lending 40k on a purchase price of 190k. 40/190 = 21% lending value.

It's possible that this gentleman has poor credit and would not be approvable through CMHC for 95% financing. However, that doesn't mean a bank wouldn't do 80% by way of a conventional Mortgage.

190,000 x 80% = 152,000 - 1st Mortgage

The other approximately 40,000 you will finance to the buyer as a 2nd Mortgage on title.

He will get ownership of the title and you will fall behind the first lender. The idea is that after a year the property value would have increased to say $237,500 in this case where he can refinance 80% again through a bank for $190,000 and pay you out.

Now I don't know if that is what he is suggesting, it's just something that does come up in some situations and I thought it could be some information you could use.

[nickerjones]

well i dont know how he would have poor credit if he was able to finance the whole edition him self and what not .... but oh well .... i am not quite understanding what falling behind the first lender means. I say this because once he pays the 150k the house will be paid off .... and he will owe the other 30k to me ...

does that make any sense? HERE ill just use the real numbers.. I bought the house for 193k but only had to finance 150k... and he was buying it back for 185,000. He made those mortgage payments but since he couldnt buy it when he said , i told him 179,000$ is the least i will take or i will just go to a mgmt company. I said this because he is the type that wants to be able to control who is in his community etc, plus he is also out money putting some more upgrades and what not in the house so i knew he would not want to lose that money as well.

So after the 150k is paid , the house is simply in my name and fully paid for... so there would be no other lender as he would simply owe me the other 29k and he would make monthly payments plus interest for a year and then pay it off in a balloon payment .... does that make sense?