Do those 'rent to own' housing deals ever pay off?
If you've been in the U.S. recently, you've seen the signs, generally at large intersections: “Rent To Own! No Financing Necessary! Call Now!”
Ottawa-based Rent 2 Own Canada, for instance, claims to help first-time buyers to work towards ownership without a huge investment. Same with Calgary's Rent Faster. And then there's a stack of offers on Craigslist as well.
But is this really the way to go if you're strapped for cash or have a shaky credit history? Or are the deals simply too lopsided?
Usually, the seller gives the tenant the right to buy the house at some point in the future, usually one to three years out, for a price that's agreed upon today, plus a fee that will keep the option of buying open.
So, if a home might normally rent for $1400/month, a rent-to-own tenant might pay $1600, a portion of which would be credited to the tenant for an eventual down payment, assuming they ever get that far. If not, expect to kiss the phantom 'equity' goodbye.
During the rental period, the landlord still owns the home and is legally responsible for it, but the renters are expected to maintain the property as their own.
If you're going this route, do the numbers a couple of times. Make sure that the owner provides you with a title showing that they have full and total authority over the property, and can actually to sell it to you, warns broker Canadian Mortgages. And make sure you see mortgage paperwork every single month that you live in the home.
This way, you can be sure that the mortgage is getting paid, you won't be evicted in the meantime and the place will still be there when it comes time for you to own it.
Have you been involved in a 'rent-to-own' arrangement? How are things working out? Do you know any tenants who've actually came out ahead?
By Gordon Powers, MSN Money