- Hi, I have a question about a residential rent-to-buy scheme. This may have been asked before, even many times, but I'm uncertain how to Google an answer. I will try to be brief.
I'm looking at buying a property in NSW whereby the offer goes roughly as follows:
* The property title ('ownership', I understand there are different aspects of a title?) is transferred to me immediately on moving in. (They said for example I could rent the place out if I wanted to).
* My rent goes towards a mortgage which is signed over to me once there is enough equity to act as my deposit for my own loan, which is loosely targeted for 3 years.
* They say we can pay more into the loan even during the initial period. Insurance etc. is maintained by them, rates etc. are handled by me. I think that's it…This sounds impossibly good. They are now asking for $1000 as an application fee, to be followed by around $1000 more in legal fees before we move in. We have not seen a contract yet.
Is this just a scam to get the initial $1000 (and another $1000 if you haven't twigged before you sign the 'contracts')?
And for bonus points…
The seller, the financer and the agent are different people. (The financer is Write On Investments who have had an ABN since 2005.) What would each of their motivations be – why would they choose to sell the house in this way?
PS Sorry for cross posting this from another forum, but after posting I found a conversation here from a vendor involving a very similar sounding setup.
Thanks!
who’s solicitor do you use? Yours or theirs to review the contract & inform you of your rights.
This is becoming popular in Australia and has been available overseas for a while.
I haven't got time to type all the details but it is legal here. Read this site- there is an Ebook to download explaining it. Or google Rent to own. Or google Rick Otton- he set up Webuyhouses and he teaches courses on how to do this (they're the agents that get you into the deal).
Just be careful that you get a house you really want. Not just one that you think Oh well I would be paying rent anyway so it's free. I think only the "extra" rent you pay goes to the purchase. Not ALL the rent. Get a solicitor to check (yours, not theirs).
http://www.renttoownhome.com.au/
It is purely designed for people who cannot get into a property in the normal manner. If you have a deposit you can sourse properties cheaper yourself (assuming you have the knowhow). Nothing is for nothing.
The title is unlikely to pass to you until you pay the final payment.
They could be just after the initial $1k, but probably would like to make more by getting you into the house. They will likely charge you a premium on the rent and a premium on the price you pay for it. if prices are rising then this can work in your favour, but when prices are flat then you will be paying more than if you were renting a similar property elsewhere.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi aybiss
As Terry says, if it is a true Rent To Own, the title will not transfer to you until you buy the property.
The legal paperwork that goes around a Rent To Own is a Residential Lease and an Option. The Residential Lease gives you the right to occupy the property and the Option gives you the right (but not the obligation) to buy the property, for a fixed price, for as long as the Option lasts. In your case it looks like the Lease and the Option will run for 3 years.
From what you say it looks like the sellers are offering what we call an Equity Credit. An Equity Credit allows for a fixed proportion of your rent to be credited towards your deposit when you 'exercise' the Option, i.e. when you actually buy the property. Usually this Equity Credit is only credited to you if you do exercise the Option, i.e. if you don't exercise the Option and walk away, you don't walk away with the Equity Credit.
Some points to watch with Lease/Options are:
1. Find out who is offering the Lease/Option. Sometimes the people offering Lease/Options only have control of the property via a Lease/Option themselves, i.e. they have a Lease/Option on the property and are actually offering you a Sub-lease and an Option. We are wary of this type of arrangement.
2. It looks like you are being offered a Lease/Option with a term of 3 years. If you can't finance into a traditional loan within this 3 year time frame, both the Lease and the Option expire. Not a great position to be in. Therefore it is extremely important for you to consider the likelihood of you being able to get a traditional loan within the length of the term you're being offered.
3. As people have said above, you do usually pay a premium for a vendor financed property. However this premium does vary considerably among vendor financiers, i.e. shop around.Another vendor finance alternative, is to find a property being offered for sale with an Instalment Contract. These transactions are regulated by the National Credit Code and are often offered with a 30 year term.
At this point, I'd suggest you do more research into what's available out there in the vendor finance market place. Some places to search for available properties are:
http://www.renttoownhome.com.au
http://www.gumtree.com.au
http://www.vendorfinancedirectory.com.au
http://www.vendorfinancerealestate.com.auCheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Rent to Own remains largely a vendor run strategy.
Therefore .. even despite the strict codes regarding finance lending … you'll find yourself at the mercy of the vendors rules.
95% of them will be ok … and there will be the couple that just arent. But thats life .. there are the shonkys.
Rent to own fills the gap where the person CANT go to the banks or lending institutions because of poor credit histories … a variable job record .. or inability to produce correct documentation. They charge a premium for it .. usually anything up to 3% above bank rates ….. but you get your chance to get into the property market. So .. you are an increased liability .. but .. they take that on board .. they CHARGE for it … and .. they make their money on the deal.
Vendor terms may have significant extra vendor conditions involved in the contract. Like any document .. READ WHAT YOU ARE SIGNING. The last thing you need is to pull up and think you can quit the contract .. and a penalty clause is invoked. Its vendor money and they play the bank. That may not always work in your best interests.
Good advice above. There are hundreds (thousands?) of people now doing courses by Rick Otton and the like) to set up these deals. Of course people do this to make money. They pay $5K to do the course and get the materials.
It's not a scam but tread carefully. Personally (as I said) I would ONLY go this path if there is no other way to get into a property (and you REALLY) want to own your own home. Just be aware that people are making money on the deal. Every extra person in the deal means more people making money (middlemen).
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