Rent-to-Own Objections

I had met with a seller early in the spring of 2014 who had a home that was a prime candidate for my rent-to-own program.  He said: I’ve done some research online why can’t I just do this on my own?  If rent-to-own, or lease with option to buy, is not done correctly, the results can be disastrous.  However, this doesn’t mean that you should not use this wonderful technique to sell a home fast.  Below are some of the most common objections to renting to own and how to remedy them!

#1) What if the owner of the property defaults to his bank?

I want to preface this by saying that I took the phrase “what if”out of my vocabulary over a decade ago.  I have replaced it with:  Is this a meaningless turn of phrase?  If I had listened to “what if” and “I can’t,” I would never be where I am today.  That type of thinking will have you renting a property for your entire life with no tax benefit, no appreciation, no principal pay down, and endless rent increases.

So, how can we address the possibility of the landlord defaulting on his mortgage?  The tenant can make payments directly to the bank with the landlord receiving written confirmation that payment in full has been made.

#2) What if the owner owes more money than the current home is worth?

You want a long-term leasHouse Life Preservere with an option period in this type of situation.  I would recommend several years. Certainly no less than 5 years.  This would accompany receiving rent credits to capture the pay-down mortgage balance over time.  Rent credits, simply defined, are an amount of the monthly rent that is credited toward the purchase price.  Remember, searching homes for sale in Raleigh, North Carolina, won’t help if you don’t have the cash or the credit to buy a home.

#3) What if the value of the property drops?

This can be addressed in several ways: rent credits, length of option period, and an appraisal clause in the purchase agreement that will accompany the other documentation.  Rent credits will allow the buyer to pay down the purchase price over time.  This will address the issue of no appreciation or if the property value drops.

The purchase contract should have an appraisal clause in it.  If the property did not appraise at the option price (a.k.a. strike price) the option period can be extended or the purchase price renegotiated.  This is why it is important to do business with a professional that you trust.

#4) What if your credit and or job history never improves enough to get a loan?

loanI’ll be honest, you’ll never get anywhere with this attitude.  While there is nothing wrong with renting a place of residence forever, you are missing out on substantial benefits by not owning a home.  In this low interest rate climate it is cheaper to get a mortgage than to pay rent anyway.

#5) My agent said it was a bad idea:

No sale, no check!  Agents don’t get paid until you buy the property outright.  Agents don’t work for free and they shouldn’t.  Besides, you shouldn’t take advice from someone on a subject that is outside their area of expertise; most agents only deal in the traditional realm of retail real estate and don’t venture from it.  The definition of a broker is one who brings buyer and seller together for a fee.  This is a legitimate area of expertise but does not translate into the proper analysis of a good deal.

#6) What if interest rates go up?

Think of those that did not buy a house in the very early 2000’s because of this fear.  They missed out on cheap money and historically rapid appreciation despite the events of the late 2000’s.  By 2009 they would still be paying less for their mortgage than a comparable property would rent for and they would have tax benefits of paying mortgage interest, plus a substantial equity base in their home.  You won’t get anywhere in life sitting on the side lines!

Related Posts: What’s The Difference Between A Lease Option And Owner Financing?

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