I’ve seen the term rent-to-own being decried as a scam all over blogs and local news. Like anything else, you have to be careful who you do business with. I explain rent-to-own in detail in another post in this blog. Here we will explore the question: is rent-to-own a rip off?
The Common Way To Do Rent-To-Own
Shake down for maximum profit. The way most companies do rent-to-own is to charge the maximum rent per month, sometimes higher than market rent. Charge the maximum possible purchase price, with shortest possible option period (usually one year). All while pushing the burden of repairs on to the buyer. Only apply rent credits that are offered over and above the rent amount.
The Way We Do Rent-to-Own in Raleigh NC
We have an everybody wins attitude when we do this. This strategy is most appropriate when a property has too much debt for it to be held as a rental property in our portfolio. This is sometimes what is called “no equity no cash flow”. Usually, these situations don’t even have enough equity to pay the cost of sale. If a seller has left the property vacant or cannot make the mortgage payments, then rent-to-own can be a viable solution to foreclosure. We only do rent-to-own in the state of North Carolina, mainly in Wake County.
Discounts as Incentive to Perform
We never charge a tenant buyer more than market rent. We like to charge below market rent to get the most qualified tenant in place as quickly as possible. Remember, when you need to sell a house fast, time is of the essence.
Also, in NC, the landlord is responsible for maintaining the property in safe and habitable condition. Better to offer discounted rent in exchange for sending out a repairman for the leaky faucet or ice maker.
Rent Credits as an Incentive To Pay On The First
We’re more than happy to give rent credits in exchange for rent payment no later than close of business on the 1st of the month. In North Carolina, there is a five day grace period before a landlord is able to assess a late fee.
Yes, we take an assignment fee. We like to give the tenant buyer several years to buy the property to allow the large mortgage to pay down so the new loan can clear the existing mortgage. Remember, let’s set everyone up to succeed.
So is rent-to-own a rip-off? It’s like buying a used car: you have to be careful what you’re buying and who you are doing business with.