Is rent to buy a scam?

Certainly not a scam. This has been around for hundreds of years.

Hi jmsrachel,

Rent to Own is absolutely NOT a scam. It's how the media like to play it out (ie: bad landlord/property investor vs the good/supposedly taken advantage of tenant).  I mean really???? Don't believe everything you read. Seek the facts from people in the know and don't read into the "Emotion" of it all. Unfortunately, yes, there are some people who have charged in "excess" of what it is deemed "reasonable rent" and they seem to be the ones that the media pick up on. These people taint the whole Rent to Own system for the rest of us who do the right thing.

Rent to Own or Rent to Buy situations have been around for years and have helped thousands who have otherwise never been able to afford their first home with very little deposit. Rent to Owners might pay a premium rent but the difference is "credited" towards the purchase of the property. The contract stipulates that they have the "Right" but not the "Obligation" to purchase the property so they are not being forced into a purchase. It's a "try before you buy" situation which at the end of the day they can walk away from.  They will lose their Option Fee – but that's something they've agreed to right up front.

Funny how no-one questions Retra-Vision's Rent Try Buy system???? Something to think about…..

Cheers, T43

Terry mentioned that it's been around for hundreds of years.  As far as we can make out it's been around since about the 1870's in Australia.  Have a look HERE to see some interesting old sales posters, showing how most blocks of land were sold to Mums and Dads before the banks took over.

Cheers,  Paul

Dear Paul,

The actual link to the posters is at https://vendorfinanceinstitute.com.au/about-vendor-finance/ 

Cheers,

Michael

Hi Jenni

I guess it's worth looking at the risks involved, as compared to buying with a traditional home loan'

1/ You pay well above market rent which goes towards a deposit for the home.  Most people understand that you pay more per month to buy a home than you do to rent it.  As you say, with a Rent To Buy, you do pay a higher monthly rent but some of this rent is often credited towards your deposit.

2/ If you default you can loose your deposit.  If you default on a home loan you get no money back, have the home repossessed, your Credit Report shows a huge default for years and, if the mortgagee auction doesn't raise enough money, the lenders mortgage insurer may come after you and bankrupt you.  With a default under a RTB you give the house back and walk away with a clean credit record (as a RTB isn't a credit contract and can't be entered onto your Credit Report).

3/ If at the end of the rental term you can't get a loan to buy the house, again you can loose your deposit.  As mentioned above, with an RTB part of your rent is often credited towards your deposit, if you end up buying the property.  Most vendor financiers these days build in multiple extensions into their legal paperwork but, if after years on an RTB, a tenant/buyer has been unable to get themselves into a position to get home loan, is it unfair that the RTB provider sticks with the original agreement in the legal paperwork?

4/ Money you pay towards the deposit doesn't get put into a trust account, so there is risk of not being able to recover the money.  When a RTB purchaser enters into a RTB arrangement, the legal paperwork clearly says that any rent that is credited towards the deposit, will only be available as a credit towards the deposit if the tenant/buyer actually buys the property, i.e. the legal paperwork makes it very clear that this crediting of funds can only be used for the purpose of paying some of the deposit, if the tenant/buyer actually buys.

5/ what happens if the owner defaults on the loan.  RTB paperwork these days, often has provisions for the rent and on-going option fee to be paid directly into the seller's underlying loan. Thus helping to ensure that the seller doesn't go into default in the underlying loan.  In this area, a vendor finance Instalment Contract does give a vendor finance buyer greater security.

6/ You don't own the house while renting, and are bound by the tenancy laws.  Yes this is correct but a lot of people don't mind being tenants knowing that some of their rent is going towards owning their own home.

7/ Contracts can be complex and you need a good solicitor.  Absolutely, we insist that all our tenant/buyers get independent legal advice.

Cheers,  Paul

Hi Rhino101…..yes there is a book which will give you the basics – "How to Buy a House for a Dollar" (Rick Otton). You can also find legal info at Tony Cordato's website http://www.vendorfinancelawyer.com.au. Other resources would be the Vendor Finance Association as they have meetings you can go along to.  Alternatively you can do a Joint Venture with someone – you buy the property and your JV partner (one skilled up with the knowledge of RTB) can do all the legwork in terms of setting it up as a rent to own. If this is something you would like to consider and you live in Sydney – please drop me a line at:  [email protected].  Regards, Tamara

Hi eVeryone

i am currently getting together details of borrowing capacity to buy an investment and then try and sell with rent to buy/VF.

i note above Tamara that you mention a JV. I am in WA, is there anyone out there willing to look at a JV, if so how would it work? I buy the property in my name, and then my JV partner finds a buyer and negotiates all the terms? Then what is in it for the JV partner long term?

thanks for your help.

trying desperately to get into the property investing market, with currently 1 -ve geared IP to my name, plus PPOR… I tried to sell my IP on rent to buy, and got let down twice, so had to rent traditionally again as mortgage had to be paid, and I couldn’t afford for it to continue to be vacant.

Looking long term to replace my income.

i am time poor at the moment, having last year signed up with Steve Donaldson but couldn’t continue due to time commitments. (Following failure of  my attempt on rent to buy above).

Thanks for that info, do you, or does anyone know of anyone in WA that is doing this sort of stuff?

Interesting.
I always had the perception it was shady.
It is such an unfortunate name ‘rent to own’ it sounds dodgee and gives media such a head start… haha.