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    Default Selling Home; Rent to Own

    Hello Beyond,

    Has anyone ever sold a property on a rent to own basis?

    My understanding of the basics from some online reading is that I would raise the rent on the property on a monthly basis and the additional amount would go toward the renters down payment towards my place. The purchase price would be pre-determined, and the monthly payment increase and term of lease would be based off of this value.

    I would consult with a lawyer prior to drafting/signing any agreements, however, looking for some feedback from those who may have gone through the process? Open to both pros and cons to weigh out if this is something I would want to consider.

    Thanks in advance!

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    Holy fuck no. Never. Not even once. No. Hard no.
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    Well, my cousin bought his house through rent to own about 15 years ago, BUT he bought it from his sister in law, so it all worked out fine.

    I wouldnt do it EVER for most people, very special circumstances only.

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    Wtf does that even mean? Are you a bank?
    Quote Originally Posted by Gestalt View Post
    Im the one with a learning disability....

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    Quote Originally Posted by dirtsniffer View Post
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    Wtf does that even mean? Are you a bank?
    People getting creative to generate sales/revenue on properties is my guess. After 90 days on the market i'm about to rent mine out, market sucks hard right now!

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    Meanwhile in Ottawa, it's a bidding war with offers over asking price.
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    I had a coworker when I was in automotives who was a terribly lazy person, and just as bad with his finances. He signed up for a rent to own scenario where he paid more than the standard rent (don’t remember the exact amounts but considerably higher than the rent) to put towards a down payment. The terms he agreed to included forfeiting the additional amount paid if he chose not to buy the house. There was no way he would ever have been approved with his poor finances and debt ratio. It struck me as a good way for a landlord to squeeze extra money out of idiots.

    PROS
    - the renter might take better care of the house because they think they’ll own it.
    - you get paid extra cash that could be forfeited to you if the renter doesn’t buy the house.
    - when the renter finally scrapes the cash together, you can agree to sell it for full market value.
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    Quote Originally Posted by msommers View Post
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    Meanwhile in Ottawa, it's a bidding war with offers over asking price.
    Pays to work for the government
    Quote Originally Posted by Gestalt View Post
    Im the one with a learning disability....

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    Same in PEI and pretty much for the same reason. PEI has an ungodly percentage of government workers, because they also have an unreasonable number of MP's per person.

    You can always follow the money to the votes.
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    My father is currently doing what are thinking of and it has been working out for him. I think it's great for both parties. Also, when the lawyer drafts something up, be sure to use someone who is familiar or has done this before. To the people who say no, why not? I get if the place was newly reno'd or something. My father has also held 2 different mortgages for people. One, the guy paid out the balance after 5 years or so, the other is still making normal payments. **if you do the rent to own, the person renting to own is responsible for all maintenance/major repairs.

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    Quote Originally Posted by corsvette View Post
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    People getting creative to generate sales/revenue on properties is my guess. After 90 days on the market i'm about to rent mine out, market sucks hard right now!
    Plus, if the sale is at a pre-determined price, it's a good hedge for the seller against further price erosion... Let's be honest - with the way things are and the writing on the wall, setting a price today is not likely to work against a seller closing in, say, 24 months.

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    Cons:
    Usually attracts people with zero credit and an inability to borrow from the bank.

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    Quote Originally Posted by mr2mike View Post
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    Cons:
    Usually attracts people with zero credit and an inability to borrow from the bank.
    People who will probably a) not make the payments and b) probably not go away peacefully when they default on the payments.
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    I saw one of these signs on a house in my neighborhood too. Was wondering what that was all about.

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    Quote Originally Posted by ExtraSlow View Post
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    Same in PEI and pretty much for the same reason. PEI has an ungodly percentage of government workers, because they also have an unreasonable number of MP's per person.

    You can always follow the money to the votes.
    As someone who grew up there, I cannot say that I fully agree with that.

    Summerside had a large military base which employed a large portion of that town. It shut down which basically would have caused that town to disappear but then the Federal Government opened a huge GST center in Summerside which employs like 1500 people.. Basically the only people that make decent money in PEI work for the GST center. A large population works in Alberta or Cavendish farms (labor work) and the rest make low wage jobs or seasonal jobs for tourism..

    PEI is not a great place to live.

    But back to the housing market. PEI housing market is booming because of immigration money and investment for vacation homes. Unfortunately this means that housing will NEVER be affordable for the people that live and work in PEI.

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    Quote Originally Posted by mr2mike View Post
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    Cons:
    Usually attracts people with zero credit and an inability to borrow from the bank.
    I agree with that. If you are already renting to them, it's a moot point really. Not sure if that's the case here. You can adjust the interest (amount put towards down payment) based on the risk factor/inability to borrow from the bank. If they default, take back your house.

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    Quote Originally Posted by ExtraSlow View Post
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    People who will probably a) not make the payments and b) probably not go away peacefully when they default on the payments.
    People have this issue when renting all the time. The procedure is cumbersome, but it works eventually to get people like that out. There are risks, but not more than renting the place.

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    I don't think the OP is looking to carry the note... It's more of a forced savings plan for the renter while they build up their downpayment by paying additional rent and increase their likelihood of qualifying for a mortgage through traditional means.

    For example, the renter and the OP agree on a price, probably today's market value. The renter agrees to pay the OP an extra, say, $1,000 per month for 2 years. During those 2 years, the renter cleans up their credit, saves more for their downpayment and gains two more years of employment experience. They're also paying the OP $24,000 in additional rent that can be used as a deposit or put towards the downpayment on the mortgage. If after 2 years, the renter does not qualify, the OP keeps the extra $24k and the renter is SOL.

    If done correctly, I see this as very low risk for the OP.
    Last edited by you&me; 08-27-2019 at 10:41 AM.

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    Agree with above. No more risk than renting. If the OP is thinking of this, he should consider holding the mortgage. Anyone wanting to do this prob. Can't get approved through a bank. The OP is already. Add a couple points to his current mortgage and bam. You are making some $ with the potential of keeping the property if they default. The only downside I see is the potential for some court/legal fees. Especially if the other option is just renting the place out.
    Last edited by arcticcat522; 08-27-2019 at 10:45 AM. Reason: Added a bunch of words

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    Quote Originally Posted by mzdspd View Post
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    As someone who grew up there, I cannot say that I fully agree with that.

    Summerside had a large military base which employed a large portion of that town. It shut down which basically would have caused that town to disappear but then the Federal Government opened a huge GST center in Summerside which employs like 1500 people.. Basically the only people that make decent money in PEI work for the GST center. A large population works in Alberta or Cavendish farms (labor work) and the rest make low wage jobs or seasonal jobs for tourism..

    PEI is not a great place to live.

    But back to the housing market. PEI housing market is booming because of immigration money and investment for vacation homes. Unfortunately this means that housing will NEVER be affordable for the people that live and work in PEI.
    You're right about PEI not being a great place to live, I made the mistake of moving back 2.5 years ago and presently waiting for my house to sell so I can move back to Calgary.

    The housing market here is in a terrible state, both rentals and buy/selling. Lots of people aren't willing to live outside of Charlottetown/Stratford/Summerside so buying a house in "town" is hard to do, alongside most locals can only afford to buy something in the $250k-300k range.

    I could go on and on about PEI, but long story short is never move here unless you're retiring and join the wave of elderly that will always be here.

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    The biggest risk is if the market starts to boom. As the renter, that’s the only time there is an advantage. If you want to sell and you don’t see prices ever recovering, why not? Get an inflated purchase price now, don’t pay a realtor. Win.

    But as someone who secures lending for homebuyers... its pointless

    1. Being a private sale, there will be an appraisal condition on any sort of lending. If your PP is too high, the LTV will be based off the lower appraisal amount. Chances are high that there will not be enough DP to satisfy the loan.

    2. There is no reason for this for people lacking funds with the new home buyer incentives coming out next month.

    3. If people have funds, but shitty qualifying characteristics (which is most likely if someone can afford rent, plus forced savings) there are a ton of alternative lending solutions. Yes the rates are higher... but still cheaper than rent plus DP that rent to own has

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