Each year lots of people ask me if I know of properties they can ”rent to own”. Let me state UP FRONT that rent to own or lease/option is generally a BAD deal for the “buyer” in the Louisville area. Let’s explore why.

Rent to own is generally considered an “alternative mechanism” for getting a home sold. The sales market in the Louisville area is very robust and has never needed ”alternative mechanisms” (like rent to own, owner financing, etc.) in order for a Seller to dispose of their home.

When a “buyer” enters into a rent to own situation, it generally works like this. The buyer puts up a down payment of generally $2,000 to $5,000. A purchase price is stated (which is generally in excess of what the home would sell for in the free market) as is an interest rate (again, generally in excess of the market rate because the buyer has bad credit). If you ultimately exercise your option to purchase, a portion of your “rent” payments to date should be credited by the “seller” against the purchase price.

If you don’t exercise your option to purchase or you default on your payments, you are kicked out of the house and your large down payment is GONE – forfeited to the “seller”. In fact, many “sellers” HOPE you DO default. They’ll take your down payment as a windfall profit and move on to re-sell the home to the next sucker.

Oh yeah, one more important thing about the home you’re going to option – it’s most likely a total “dog”. Such a home is available on the “rent to own market” because it was too crappy to sell in the regular resale market.

Okay, now why would a “buyer” actually seek this type of situation? Well, generally these “buyers” have terrible credit (they can’t get a normal loan) and also have no money to get a normal market loan (yet can come up with money to potentially forfeit under a rent-to-own – THAT doesn’t make sense). This adds up to - they don’t have ANY idea what they’re doing. If these “buyers” KNEW they were about to put their future in the meat grinder, they wouldn’t do it – or at least I hope they wouldn’t.

Let’s summarize this environment – the “buyer” has bad credit, is financially unsophisticated, and desperate for someone to “give them a chance”. They’re so desperate, they’ll trust anyone who sounds like they can solve their problem. On the other side, the “seller” is very savvy, has a crappy home they can’t otherwise dispose of, wants a lot of upfront money from someone who can’t afford to give it, and actually doesn’t care if the “buyer” ever exercises their option or not.

Sounds like a recipe for disaster – doesn’t it? At least for the “buyer” it is!!

Buyer’s, don’t go down this road. I’m trying to help you here. You’re better off to get your credit and financial situations straightened out and THEN buy a home through the normal channels. Don’t be desperate. If you’d like to discuss this further, contact me below and I’ll be happy to meet with you.