Rent to Own Homes: Good Deal or Scam?

We get calls all the time from people who want to “rent to own” a home, and we usually tell them there is really no such thing. You could possibly do a lease purchase. That is where you actually sign a long term purchase contract then lease the home from the seller prior to closing.

But these days there are very few sellers that are in a strong enough financial situation to do a deal like that, so your housing choices are extremely limited. And you have to be careful that the seller is not upside down in the home or they may just pocket your deposit and rent payments and disappear when it is time to close. Very few potential buyers are able to find a "rent to own" home that actually fits their needs. After more than 30 years of selling homes in Las Vegas, we have seen only a handful of lease purchases work out well for both parties.

But now there is a new generation of real estate “entrepreneurs” that advertise they will purchase ANY home you want to pick out, and they will lease it to you until you can get financing and buy it from them. Sounds great in theory – you can go house shopping and find your perfect dream home right away!

BUT….

1. They will use YOUR money for the down payment and closing costs. It costs the investor nothing out of pocket.
2. They collect the rent while you are leasing. You still don’t get the big tax deduction benefit of home ownership, and you are probably paying more than market rent to cover the cost of the mortgage interest, taxes, insurance and any HOA fees
3. They tack on a hefty profit to the sales price they originally bought the home for. You will usually end up spending an additional 10% to 15% more for the home, depending on how long you need to lease it before you can get financed.

And what happens to your earnest deposit if the investor declares bankruptcy or has an IRS lien placed on him before you are able to buy?!! If you do any home improvements in the meantime, those are also down the drain if you can’t purchase the home because the investor goes belly up.

Like most things in life, if it sounds too good to be true, it probably is. And this is one idea that is NOT in the best interest of any buyer, in our opinion. Better to wait out any credit issues and rent until you can qualify for a mortgage and buy a home on your own. Or, if you can save up enough down payment, find a home with true owner financing where title transfers to you. Whenever the title to your home is in someone else's name, your money is at risk.