What have your experiences been with rent to own options? I'm thinking about doing it for a property I have priced at 330k and getting a 5k deposit (I know it's a little low) .RTO sounds like a pretty good deal from what I've heard by getting a deposit, you don't have to do any repairs, and they usually don't buy so you can lease it again. Sounds like only pros and no cons except the person can still trash the property. ive never done one before and was wondering the following :

1.main pros

2.main cons

3.important information to have in the contract

4.what if they stop paying the mortgage

Jason,

Without sounding like a preacher, most of the "Pros" you list are exactly why I don't do these deals.

In Sid's world of honesty and the Golden Rule, I simply CAN'T do deal with people when I know up front there is a 95% failure rate. Some RTO sellers take time to carefully qualify their buyers and offer support, and they typically have a Buyer succeed 30-60% of the time. That seems reasonable.

Others just take hunks of money, push all the responsibilities on the buyer, then kick them out after 1-2 years and rinse and repeat.

It all comes down to one's business model.

Guess I'm too much of an Ayn Rand fan to do deal when 95% of the folks on the other end fail and I know that in advance to be the odds. Rand defines capitalism as being an exchange of value for value. What value is exchanged with the 19 out of 20 tenants who fail to close the deal?

In other words, I believe there is a BIG DIFFERENCE between "making" money, and simply "taking" money. Making money happens when you create value and exchange it for value. Both sides receive what they want. This is how wealth is multiplied vs. destroyed. It is the foundation of a moral capitalist system that has made America (one of) the wealthiest nation on Earth.

We each get to draw our line in the sand on this issue. Now you know where/why my line is drawn. Up to you to draw your own. Here endeth the sermon. ;-)

In some States, like California, you can not evict a co-owner from a property. So if a Rent-To-Own tenant has a contract where as they pay an extra amount per month towards a down payment -- then they are an owner by contract and you can not do a simple eviction.

Jason SC.

You are working with numbers waaaaay beyond my comprehension.

You have a 300K plus house you want to sell Rent to Own. No way. Take it from me, a VERY unsophisticated RE guy.

I have sold a few RTO. Usually they are tax sale properties that I get on the cheap.

So far I have only had one returned to me. After 2 years and buyers only being able to pay $600.00 I told them it wasn’t working out. Yes I hung on for 2 years. However, long story short I cleared about 38K off that property.

My operation is similar to: Buyer comes to me and ask if I have anything to RTO. (I have never advertised any RTO). Sure I have I say. Buyer ask what is the price. I ask “what can you afford?” Then I say, however, before you answer let me tell you that you only have ONE chance to make an offer. If you low ball me too much then it isn’t for sale. They give a price. If it is something I can live with then we go on with our discussion. I ask them what they can pay per month. I ask them how many years do they want to pay before they have to make a final payment. And a few other questions. In other words they make most all decisions. The only hard and fast item I tell them is the interest they pay.

If everything is agreeable we write up a rental contract. I show them an amortization chart and have them sign it. Then it is filed away and when they have paid enough “rent” I deed the house or land to them. There is only one piece of paper that hints about a sale. Robert J explained that very well.

SID and I have had this discussion about sellers getting a large down payment, then charging just a little more monthly payment than buyers can afford so the seller will get it back. I also feel that is wrong. When I try to sell a place I want it sold, I do not want it back.

Unfortunately I think I am about to get another one back. Buyers haven’t make a payment in 4 months. I will talk to them in a week or two and see what is going on. Like I said, I want to sell it – not interested in getting it back. Only paid $450.00 for it and selling for $10.200. That is what they offered and I agreed. $200 payment per month. The last time it sold before I got it it sold for $17,500.

In your case --- 300K plus NO WAY.

It will work well if you have large lottery winnings you want to sink and avoid paying taxes, because you are left with a partly modified shell of a house to rebuild once you wait 16-24 months of a foreclosure process while you pay taxes and utilities.

"Sounds like only pros and no cons except the person can still trash the property."

So, you are going to get $5k on a property worth $330k and the only "con" is that they can still trash the property...that is not a trade off I would be willing to take.

Totally agree with most of the advice above, except that most of the buyers of RTOs come asking/looking because they have no other choices when purchasing, so I think that if they put themselves in that position to lose what they put into it then that's on them...except that I also DON'T WANT TO GET THE PROPERTY BACK.

I wish there was a single type of RTO that fit everyone's needs. There isn't. You can structure it up a contract for deed, as an option, by offer healthy rental credit, creating a sellers assist fund or a combined lease option.

I would hope you structure up this transaction so you could fit into your buyers needs. Based on the numbers you have provided, I would be scratching my head a bit.

About 1/3 of my customers do end up buying the place that they want. Most of them take longer than the 18 or so months I give them. If I am able to get $3,500-$6,000 for a simple $80,000 place, why are you only getting $5,000

I tend agree with JB school of thought. I don't want the property back - that is why I am selling it. SO you need to ask yourself and the buyer - what is holding you back from buying....then you need to create a system that helps out that buyer.

Jason

Most all my properties are tax sale ones.

I do very litle work on the properties. I try to keep them on the lower end price wise.

I could do the work (or have the word done) but then I would have to get a higher price.

In my area there are just more people willing to do the work for a lower price. And as tax sale proeprties banks will not loan money on them.