I recently wrote about the trend toward rent-to-own, otherwise known as “lease with an option to buy.” Lease/options have been around for a long time, as first-time buyers used them to get into homes and build up enough equity for a down payment.
While I think rent-to-own can work for some people, including very desperate sellers who can’t sell their homes outright but have interest from renters who could help the property generate enough cash, not everyone likes them.
Comment: Ilyce, [when it comes to rent-to-own] the facts are that less than one percent actually convert to sale and a number of states’ attorneys general are investigating abuses in this area.
If these deals require a down payment or accrued deposit that is forfeited by the renter/lessee upon non-performance, the deal becomes subject to a different level of disclosure and therefore compliance as a real estate transaction.
The renter/lessor is considered the stronger party and even possibly a professional, therefore held to a higher standard.
I would take great care to advise [the seller/landlord] that in some states they can find themselves under scrutiny by various city and state authorities for potentially a predatory transaction, made worse if an informed tenant or a tenancy activism organization like ACORN gets involved.
We have seen a number of wily or underhanded investors who use these techniques to leverage property values and returns from potential lease options subject to some nasty oversight.
A: Of course, there are plenty of ways that a rent-to-own or lease/option situation can go bad. There are scam artists who pose as owners of a property and don’t actually own it, which can cause tenants to be tossed out if the true owner emerges. There are also owners who take advantage of their tenants.
Which is why I always suggest hiring a local real estate attorney who can help you go over a rent-to-own contract and suggest changes that will protect your legal options.