Most people make mistakes when they try to rent to own a home without working with a reputable rent to own company. By neglecting to verify that the homeowner is current on the mortgage and failing to negotiate a sufficient term, they seriously hinder their chances of success. Let’s look at why doing these two things can improve your odds of winning the rent to own game.
Verify the Mortgage is Current
As the owner of one of the nation’s largest providers of rent to own homes listings, I can honestly say that not a week has gone by in the last 18 months that I have not gotten a call from someone who was having to move out of their rental home or rent to own home because the property was being foreclosed on. Mind you – They had not missed a single payment. Unfortunately, the homeowner had been pocketing their money instead of making mortgage payments.
There are some new laws that help protect renters and people renting to own from having to move out in the event of homeowner default, but the smartest thing you can do is make sure that you just don’t ever get into this situation. Before you sign a contract, require the homeowner to provide you with verification that the mortgage is current. It is also a good idea that you require this verification on a monthly or at least quarterly basis.
The reason that most people decide to rent to own a home is that they do not currently qualify for a mortgage. This can be a smart decision, but only if you allow yourself enough time to actually qualify. Unfortunately, most people fall into contract terms that are just too short. Unless your credit is already fairly good, a six or twelve month contract just is not going to give you enough time to improve credit to the point that you qualify. You need to negotiate our rental period to be 24 -36 months at a minimum. Only then will you give yourself the time you need.
Make sure the owner really wants to sell
There is a method of real estate investing that pushes “investors” to play a game with lease options and rent to own homes. Essentially, they seek out people who have bad credit and no other way to get a home. These people are desperate. They then option them a home on a very short term with a purchase price that is so high that no mortgage company would ever make a loan in that amount. Their goal is to collect an option fee but make it such that you could never actually exercise the option. A year later when you move on, they then repeat this process with a new tenant.