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How rent-to-own can scam you out of your money and time


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You’ve probably heard or seen online rent-to-own ads as a potential solution to not being able to afford a home, but you probably haven’t heard how they’ve been used to entice many people to spend money, time, and effort on a home that never ended up being theirs.

What is hire-purchase?

Rent with option to buy is a particular type of agreement where you plan to become the owner of the house after a period of time agreed with the seller. Think of it as leasing a car that gives you the option to buy it right before the end of the lease. If done correctly by both parties, the option can be beneficial for those involved. However, there have been a few bad apples in the rent-to-own market that have taken advantage of many who expected to be homeowners.

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What are the risks ?

Most lease-to-own agreements are far less forgiving than the conventional lease or purchase agreements we are used to. People sign contracts for deeds, where the buyer buys an agreement for the deed rather than buying the deed itself. If the tenant does not follow the details of the deed to the letter, the contract is broken and the seller has every right to evict you and keep all the equity you have invested in the house.

In 21 years study conducted by the Texas Department of Housing and Community Affairs, less than 20% of potential buyers became homeowners. Nearly half of them had defaulted on their payment obligations and had their contracts terminated.

According to a recent report by AtlanticMany of the mishaps of being tricked into a rent-to-own situation happen because of a lack of understanding of the process. Because many renters think the house will be theirs, they usually “invest” a lot of money into the house to improve it. This is usually the case because many rent-to-own homes are “fixer”, meaning they are not in the best living condition. Tenants can then miss payments and therefore break their contracts. You end up with a very nice house that your landlord still owns and a big hole in your pocket.

How to properly rent with option to buy:

  • Read the contract. As basic as this sounds, it cannot be overemphasized. Make sure you fully understand the parameters that are required of you and understand what the penalties are if you violate them. Some things you need to make sure of are in your contract: the price of the house, the cost of rent, and the deadline by which you can buy. Make sure the contract tells you what percentage of the rent will go towards buying the house and how those payments are to be made.

  • Watch the wording of the eviction. Make sure the terms don’t put you in a position where you can be easily evicted, especially after investing in the home through maintenance, improvements, or equity. If you are expelled, make sure you are compensated in some way for your contribution.

  • Ask a lawyer to read between the lines. It goes without saying that most of us are not trained lawyers who know how to read an engineering lease. Spending the money to have someone review it and get their feedback will be well worth the investment considering you’re committing to a multi-year contract that will cost you thousands of dollars.

  • Keep an eye on home loans. Once you know you have reached the agreed time when you are able to buy the house, be ready to buy the property with a home loan. In this way, you get out of the risky lease-purchase contract and become the owner of the house.

Rent-to-own can be a great option for people who want to become homeowners, but can’t compete in their market or qualify for conventional home loans. It might seem like a solid option to achieve the American dream, just make sure you don’t sign a contract that will give you an American nightmare.