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Top 4 Risks in Rent-To-Own and How to Avoid Them

risks
Rent to own is becoming a more and more powerful way to buy and sell a home. It provides a legal and structured way for buyers and sellers to come out on top.

Challenges for buyers; mortgage rules are become firmer, larger down payments are needed and the average home prices are inflating faster than average wages are!

Challenges for sellers; You may be stuck with a home where the value is less than the amount owing on the mortgage, you don’t want to pay realtor fees or you simply want to get the most out of the home you have invested so much into!

Rent to own can solve all of these.

Buyers get to live in the home they want to purchase now and work with professionals to mold them into a perfect mortgage applicant in a reasonable time. Sellers are provided a chance to get more than they ever thought possible out of their home all without time pressured discounts and realtor fees.

Why doesn’t everyone do it? Rent to own can be complicated and it is NOT recommended as a do-it-yourself transaction. Rent to own professionals have a whole team of accountants, lawyers, mortgage brokers, credit coaches, and more to make sure both parties are successful. Its highly recommended you use the pros to insure success and a pain free process.

So what are the things the pros guard you from? Below are 4 things that could easily be overseen in a rent to own transaction but professionals are trained to look out for and protect you from. If you are thinking about doing a rent to own, make sure these things are addressed to save you pain down the road.

1.Insuring a Clean Title.

The seller need to have a clear certificate of title. Meaning nobody else can claim a right to the property and hinder the sale. Most people have a bank mortgage and that loan will be paid before the seller gets their money when the property is sold but if there is any co-owner, ex-spouse, home equity loan or any kind of caveat, they will need to be satisfied before or during a property take over. In most cases the lawyers pay out the debts from the sale money of the home. A rent to own pro can get you this assurance and make you aware of what you are getting yourself into when you enter into an agreement.

2.Poor Property Condition. 

You should always know what you are getting yourself into. In most cases while the tenant/buyer is renting and preparing to buy they are responsible for all repairs just as if they are the home owner. With all the benefit of home ownership also come the responsibility. Getting a property inspection is always recommended to have a professional look into all areas to get you the best idea of what you are getting into. Rent to Own professionals have these people part of their team and can get that sorted for you. They may even cover the cost. Cost covered or not you should look at it as an investment into the home and this could save you thousands down the road.

3.Bad Agreements.

First off, never get into a rent to own agreement with just a hand shake. I’ve heard too many horror stories of things going wrong and parties being unclear of what was agreed on. If this is the case, there is only your word to stand on and that won’t do you much good if you get into a conflict that elevates to the courts.

In normal negotiations, the person who writes the agreements is the one with the upper hand, the other party has to accept or request a change. That’s why it’s best to use a professional company that has these documents created by real estate professionals and reviewed by lawyers to ensure everyone is covered with black and white. You need to have these agreements and understand them fully to cover your butt if things get fishy.

4.Avoid Predatory Sellers.

Some sellers will lure people into a rent to own agreement with no intention to ever really sell. They will charge inflated rent and sabotage you so they can keep the deposit or down payment credits. This is the worst case scenario. Make sure you have a third party account or a neutral representative set up to hold these funds until it’s time for the purchase of the home. A rent to own professional can help you set that up and make it so your money is protected from BOTH PARTIES and goes where it needs to when the time is right.

Bottom Line

I don’t mean to scare anyone away from rent to own. There is always risk in any real estate transaction. But fully understanding the risks and how to mitigate them can give you the opportunity to be successful and take advantage of this powerful tool!Working with professionals, understanding the process and getting help to do your due diligence should let you utilize this to become a home owner or sell your home with many benefits.

Contact us with any other questions, to learn more and see some how-it-works videos for buyer and sellers at R2OCanada.com

Brendan

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