The Dangers of Offering Properties as Rent to Own
by Fortune Builders
Rent-to-own programs often offer amazing deals for those who want to
buy a home but just can’t qualify for a conventional home loan right now
but are they a good move for owners and investors?
If you have talked to any number of real estate agents about
properties you own at least one or two has probably suggested that you
offer your properties on a rent to own basis. This of course makes it
easy for them move your property and make a commission but is it a smart
move? Other investors are doing it and many swear that it is the best
way to move real estate investing deals faster in this market but are
there dangers no one is talking about?
Running rent-to-own programs can be a very attractive option for real
estate investing companies. It certainly drives in plenty of inquiries
and new leads. It can be a fast way to get your properties occupied and
put in tenants who will theoretically take on more financial and
maintenance responsibilities which can increase profit margins. However,
there are disadvantages.
For a start it means locking into long term agreements. Often it
means committing to lower prices than you could get later and reducing
your exit options. Poor quality tenants can also be an issue that cause
real estate investing companies big issues down the road. After all
there is a reason why these renters don’t qualify for home loans right
now.
You also have to ask how solid this real is as a real estate
investing exit strategy. Are you really being realistic about how much
down payment to ask for? Many of those new to real estate investing see
others asking for 20% down or other large figures and think that they
can too. Remember that just because another real estate investing
company is advertising something, it doesn’t always make it a good idea
or mean that it is working for them. If these prospective tenants had
that kind of money, don’t you think that is most cases their credit
would be good enough to get a mortgage too? Plus you need to know your
state laws regarding equity. This could give your prospects and
equitable position in your property, technically making them part owners
right away, making it excruciatingly painful to evict them even if they
don’t hold up their end of the deal. With great cash flow is it better
to hold for a couple years then sell while retaining max flexibility?
There are many benefits of rent-to-own for buyers and real estate
investing companies alike but make sure you know all of the pros and
cons.
go to Fortune Builders
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