Risks involved in “Rent to Buy”

Hei GorG

All I know is it is an attractive way of entering in to positive cash flow properties. But you need to be clear with the terms in the agreement with the other party.

What would happen if the buyer defaults the payments in two months in to the contract? then you being the title holder will have to make sure you got enough to cover your loan repayments and rates, and if the property is in an area where there is no much potential for growth, you might have problems in selling (if you want to) your property for a better price.

Good luck…

I did 6 of these many years ago and would not touch them again.

The major risk is being locked into a option with the tenants benefiting more than you do. Don't allow long term options.

Other risks include being taken to the residential tenancy tribunal and being forced to pay the rates yourself (maybe gotten around by building this into the price of the rent). Problems with repairs maybe.

In my experience, you may gets slightly higher rents during the period, but you will get lower than market value when they cash out. That makes it harder to repeat as you will have limited funds available and the market will be more expensive to buy into again.

There is also the opportunity cost. You will eat up your borrowing capacity and miss out on other deals as your funds will be tied up.

Is your joint venture partner a licenced real estate agent? If not, will they be breaking the law by collecting the rent and managing it all for you?

I would strongly advise to be very careful in entering a deal like this. Feel free to email more details if you want me to look at it further.