Look out for these three red flags when purchasing a rent-to-own property.
Recently, some clients asked me if I know of any rent-to-own properties that they could take a look at. This immediately raised red flags.
There are some significant risks to these rent-to-own properties. We’re in a seller’s market so if someone’s asking about a rent-to-own property, they likely are not educated on the market.
Why would a seller agree to a rent-to-own agreement when they could put their property on the market, accept a traditional contract, and likely sell for over asking price within one to two weeks? If a seller is accepting a rent-to-own agreement, this could be a huge issue for you. Here are the three main problems that come up:
1. They are avoiding inspections. Property owners will list rent-to-own properties in order to avoid an inspection. When we represent a buyer we always recommend that they have an inspection, even in a seller’s market. A tenant living in a property is more likely to forego an inspection because they feel that they know the way it runs and operates. If any repairs come up while they’re in the rent-to-own agreement, they assume the landlord will make the repairs. You definitely would want to know about an issue with the foundation before the agreement is over.
Rent-to-own properties come with red flags so be careful.
2. They are preying on people with bad credit. When they accept a rent-to-own agreement, they’re betting on the tenant not being able to pay their monthly payments and defaulting on the agreement. This would then allow the seller to put their property back on the market and make even more money.
3. They are pricing the property above market value. There are not many rent-to-own options so buyers are eager to get what they can find. Sellers know that these buyers will often pay tens of thousands of dollars above market value just to be able to get into this rent-to-own agreement.
I understand that this market can be rough for buyers, but rent-to-own properties come with red flags so be careful. Call me at 512-220-0565 if you have any questions. I would love to be a resource for all of your real estate needs. I look forward to hearing from you.