How does a landlord make more profit on rent to own instead of flat out renting?

Question

I want you to tell me why renting to own is a bad idea for a renter looking to actually come away with something at the end of the lease

Answer 1

A renter pays their monthly fee.

A buyer pays one lump sum, but that money typically comes from a loan, so they end up paying a monthly fee to the bank until the loan is repaid.

A rent-to-owner has to pay rent plus an additional fee to be applied towards the purchase price.  It should be obvious that this means a much larger payment than either of the other options.

Rent-to-own should only be considered by a house shopper if they are unable to get a home loan for some reason and all other ooptions have been exhausted.

Answer 2

It really isn't  a bad idea for you if you actually buy the home. All of the previous answers are true to an extent. However, they do not take into consideration that the owner isn't really making a profit! You must consider that the owner has a home now taken off the market and it is now being USED. Wear and tear on a home is costly these days. The renter will be using all appliances, walking on the floors, and using the air conditioning and or furnace.  The renter is, of course, responsible for all of the repairs, as it will supposedly be his home some day.  However, if he pulls out of the deal even if he makes the repairs the home has been used and

"aged " for an extra time period. The roof is now older along with the furnace and AC.

It is a fair deal  for both Buyer and seller. The renter has first option to buy at the list price.

Here are some articles that have more info.

http://ezinearticles.com/?Frequently-Ask...

http://ezinearticles.com/?Rent-to-Own-Ho...

http://www.renttoownhome.com.au/how-it-w...

Answer 3

Here's how ... and it's quite a profitable scam:

They charge more rent than the market warrants for that house, with the surplus going to the "down payment", and non-refundable if they don't qualify for a mortgage.

They rent to people who they are almost certain won't qualify for the mortgage when the time comes.

Time comes, tenants don't qualify, the landlord pockets the surplus, kicks out the tenants and starts over with some fresh victims.

There are risks for the landlord trying to do this: One woman did this several years in a row ... it looked like a sweetheart deal, but she would pick tenants who were naive and wouldn't qualify for the house, so she was making lots of money on her fixer-upper.

Finally a much smarter person - one she had annoyed in the past -  sent in a couple of stealth tenants and at the end of their lease he loaned them the money to buy the house on her terms.  She lost the house to them,at 50% of market value, he got revenge without losing any money and the tenants (distant relatives of his) got a great house

Answer 4

no one said it was bad it just has risk. What happens through no fault of  your own that the landlord gets sued or goes into foreclosure even though you have paid as agreed on the terms. You can loose your investment in the home. Do it for a year--two at the most and always pay on time by CHECK ONLY as if you Need a mortgage through a lender you will need a paper trail ti prove timely payments on this note.

I am a mortgage banker in Tn & KY

Answer 5

The problem with most "rent to own" is that a portion of your payment is going toward your down payment. You should be able to "rent only" for a cheaper price.

The landlord won't pay interest on the accumulated down payment and will have the use of your money.

As a simple  example:

You have a house that you can rent to own for $150.00 a month or rent only for $100.00

After 1 year your landlord has $1800.00. With 600 to be applied to a down payment on that specific house.

If you rent, he will have $1200.00 and you will have $600.00 plus interest to make on a down payment on any house you desire.

Stretch that out 5 years. In a rent to own you will have made a $3000.00 down payment. In a rent only, with the difference placed in a corporate bond fund, you will have over $4000.00

The "plus interest" is the key. I assure you that the landlord is placing this money in some sort of interest bearing instrument ( account, CD or bond) and receiving income on your money. I have never seen a rent to own that pays interest to the renter on the down payment portion.