All Topics / Creative Investing / Is rent to buy a scam?

Viewing 20 posts - 1 through 20 (of 23 total)
  • Profile photo of jmsracheljmsrachel
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    @jmsrachel
    Join Date: 2012
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    I've been reading a lot about rent to buy lately and it's something i would like to try in the future. It seems everywhere i read they mention that this is a scam and a bit like the rich preying on the poor. They say it's a scam as the buyer rents / buys the property at a very inflated price.  

    Has anyone had much luck with Rent to buy and is it worth exploring?

    Profile photo of Paul DobsonPaul Dobson
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    @pauldobson
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    Hi jmsrachel

    We have been working in the residential real estate vendor finance market place since 2003.  Rent To Own is one of the 3 most popular vendor finance techniques.

    Here's some information on vendor finance (VF) educational resources.

    The Vendor Finance Association is a great place to meet vendor financiers.  Dates and details of meetings are available at:  http://vendorfinance.asn.au/meetings-and-memberships/

    I believe it's important to build a good foundation to your vendor finance knowledge and there are numerous educators to choose from.  Some that spring to mind are:

    Sean Summerville  –  http://www.thepropertyking.com.au/

    Rick Otton  –  http://www.rickotton.com/

    Dave & Julie Siacci  –  https://vendorfinanceinstitute.com.au/home/siacci-system-of-vendor-finance-1997/

    Paul Zalitis  –  http://www.aussiewrapper.com.au/Cash-Flow-Investing.html

    Gordon Ku  –  http://gordonku.com/

    It is worthwhile researching all these educators and choosing one that suits your style.

    Some other research locations are:

    https://www.propertyinvesting.com/strategies/wraps

    https://www.propertyinvesting.com/strategies/lease-options

    http://negative2positive.com.au/information/about-vendor-finance

    http://www.vendorfinancelawyer.com.au/vendor_finance_intro.htm

    When vendor finance started to become popular again in the early 'naughties', it did attract a bunch of make a quick buck "specialists".  However more recently the Vendor Finance Association and new legislation have helped to make buying your home with vendor finance a viable alternative for home buyers who are unable to get traditional home loans.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

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

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of yanlyanl
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    @yanl
    Join Date: 2011
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    It depends on your financial situation, rent to buy allows to buy something more expensive then going straight to a bank, but you are paying a premium for that opportunity. Its not a scam, but not for everyone.

    Profile photo of Tamara43Tamara43
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    @tamara43
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    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

    Profile photo of Nigel KibelNigel Kibel
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    @nigel-kibel
    Join Date: 2005
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    Rent to buy is a great concept and is becoming very popular in the United States at present because finance is still very hard to obtain. I know one guy who has done over 2000 vendor finance deals since 1996.

    Its not a bad way for Australians to get into the US market. Because you can help locals become home owners

    It is a good strategy both Vendor finance and rent to own but naturally there will always be people that want to take advantage of people.

    That,s why due diligence is always important

    Nigel Kibel | Property Know How
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    Profile photo of Paul DobsonPaul Dobson
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    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

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
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    I can give you a couple hundred names and addresses of clients who i have Vendor Financed who seem to be very happy with their purchase.

    I actually have one i purchased in my SMSF in 2003 which is just financing out now and owes $174K.

    His Bank have just valued the property at $242K.

    He has been paying me interest only for nearly 10 years and i have never complained and certainly he is more than happy with the current Bank valuation. School principal and his wife is also a teacher so certainly not down and outs.

    Same as everything good and bad Vendors.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of AwethenticAwethentic
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    Dear Paul,

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

    Cheers,

    Michael

    Profile photo of jenni_nextplace.com.aujenni_nextplace.com.au
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    @jenni_nextplace.com.au
    Join Date: 2013
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    Its not a scam but it can be very risky, check out the governments money smart website. My understanding the risks are

    1/ You pay well above market rent which goes towards a deposit for the home.

    2/ If you default you can loose your deposit

    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. 

    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

    5/ what happens if the owner defaults on the loan

    6/ You don't own the house while renting, and are bound by the tenancy laws.

    7/ Contracts can be complex and you need a good solicitor

    Profile photo of Paul DobsonPaul Dobson
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    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

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

    Profile photo of rhino101rhino101
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    @rhino101
    Join Date: 2008
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    Some good info here, We have been looking at this option for a while but haven't had a lot of info on it. We would be keen to buy a property and then offer it as rent to buy. Is there a particular book or other resource people can suggest that covers the how to's on this?

    Profile photo of Tamara43Tamara43
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    @tamara43
    Join Date: 2012
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    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

    Profile photo of rhino101rhino101
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    Hey Tamara43, thanks for that. I've got books on most R/E subjects, including some that touch on this topic briefly but don't fully explain it. Will get hold of that book and have a look at the website.

    Unfortunately not in Sydney – am in central QLD. I don't mind doing lot's of legwork when it comes to researching and putting together IP purchases, but JV is always something I would consider in the right circumstances. I will have a look at your suggestions. Am looking at RTB as an option to help some family members get a leg up into their own home, so hopefully might be something I can use.

    Thanks again.

    Profile photo of SandtrackersSandtrackers
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    Join Date: 2009
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    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).

    Profile photo of TaylorChangTaylorChang
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    @scha9799
    Join Date: 2009
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    JV is a great way to move forward.

    I think the most important thing in JV is people.

    You have to be comfortable with the people you JV with, then work out who gets what and do what.

    JV partner can get a once off upfront payment or a certain % of payment. Then the original owner take the monthly cashflow and back end.

    The terms are really depend on whatever suits everyone to achieve win-win situation.

    I hope this will help :)

     

     

     

    TaylorChang | Finance Broker
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    Profile photo of SandtrackersSandtrackers
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    Thanks for that info, do you, or does anyone know of anyone in WA that is doing this sort of stuff?

    Profile photo of Tamara43Tamara43
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    @tamara43
    Join Date: 2012
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    Sandtrackers, I too am being mentored by Steve D. Did he not advise you on JV’s? In terms of Rent to Own in WA, the gov is cracking down so you may want to be careful. Hope you (or whoever is responsible for the sales part of the deal) have a Real Estate Licence. I will probably need to get one myself and I live in Sydney.

    Sorry, don’t know anyone in WA that can help you. Maybe call Rick Otton’s office here in Sydney for assistance in that regard. They might be able to give you some names.

    Shame your RTO didn’t work out. You could perhaps sell on instalment contract as an alternative.

    All the best, Tamara

    Profile photo of Jimmy86Jimmy86
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    @jimmy86
    Join Date: 2013
    Post Count: 46

    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.

    Jimmy86 | Future Assist SMSF Specialists - Bris | Melb | Syd
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    Profile photo of Paul DobsonPaul Dobson
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    Hi Jimmy

    Hopefully the following link to a media release from the FBAA (Finance Brokers Association of Australia) can help to start to clear up the ‘shady’ image: CLICK HERE to view the media release regarding Vendor finance.

    Cheers, Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

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