Rent to Own Rules

February 23, 2018 by Marty Orefice | Checklists, Contracts, Real Estate, Rent to Own

It's easier to play the rent to own game when you have the rule book.
Outside of board games, there aren’t many rules to ensure that all players are playing fairly. When you consider renting to own, you should use this unofficial book of rules to protect yourself from people trying to take advantage of you.

Don’t start a rent to own deal if you makes less than three times what the mortgage payment will be.

If you don’t make more than three times the amount of money the mortgage payment will be, the bank will not approve a mortgage. You are looking at a home that is more expensive than what you can afford. Starting a lease option when you don’t make more than three times the amount of the mortgage payments is starting a deal that is doomed to fail, which doesn’t benefit you or the seller.

Commit to making timely payments.

There are a lot of stories out there about sellers revoking the buyer’s option to buy because of late payments. You put a lot of money into a rent to own deal and the seller can rightfully keep it all if you break the contract. That isn’t a scam. It’s the way business works. If you don’t pay rent on time, your landlord evicts you. If you don’t make payments on your car loan, the lender will repossess it. Should you be wary of not having the ability to make timely rent payments, you shouldn’t rent to own. You should also wait until you’re confident in your ability to make timely payments before purchasing a home because if you miss mortgage payments, the bank will foreclose your property.

Check the title for the property.

You need to be sure that the seller has the right to sell the property they’re optioning. Additionally, you want to ensure that rent payments will be greater than or equal to any mortgage payments that need to be made because you do not want to risk the seller foreclosing on the home because they cannot afford the monthly payment.

If the seller forecloses in the middle of your lease term, you will not be able to purchase the property from them because they don’t have the right to sell it. That puts all the money you’ve invested in limbo. The seller will have to give it back to you because they’re the ones who backed out, but you will have lost a lot of time in the process of getting it back. You may even incur legal expenses.

Inspect the property to ensure that it is in good condition.

It’s often a bad idea to rent to own a property without seeing it in person first. In fact, that’s exactly how a lot of rent to own scams play out. Have an inspector check out the electrical, infrastructure, plumbing, roof and A/C unit before move in to protect yourself from large expenditures later on.

Sign a strong lease agreement with the advice of a lawyer and/or real estate agent.

To protect both parties, the lease agreement should include:

  • Under what conditions either party can back out of the contract
  • In what conditions you get your money back
  • Who will pay for insurance, taxes and repairs
  • Either what the purchase price will be or how it will be determined

Treat a rent to own deal like you would the purchase of the home because that’s exactly how rent to own deals end up.
Rules Hand Written with a Marker by Geralt is licensed under CC0.

Marty Orefice

About The Author

Marty Orefice

Martin Orefice is a real estate investor who has been in the industry for over a decade. He has experience with rent to own deals from all sides—as a buyer, seller and investor. He created to provide the #1 resource where people can find information about all things rent to own.

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