Is Rent To Own a Scam?
- Author: Mary Singleton
- Posted: 2024-09-26
How These Schemes Benefit Both Landlord and Tenants
These investors are in favor of these deals as they feel it can increase their profits. In a typical lease agreement, the landlord would cover maintenance, insurance, and taxes. However, when using a lease-to-purchase option, the tenant covers all these costs. The landlord can evict a tenant easier under these terms too. In a lease-to-purchase, the renter can be evicted for not paying the rent. However, they can also have foreclosure proceedings brought against them. Those who cannot own a home, are given a chance to have something that is theirs if they can follow the agreement. Most will work to make the property better, pay the taxes and the rent. However, some will default and need to be removed from the agreement.
Community Renewal Is The Incentive
A lease agreement typically lasts between one to two years in length. The renter pays a bit more, for the option, to purchase the home at a predetermined cost. In most cases, the tenant likes the idea of being a homeowner, but it is hard for them to fulfill the terms and actually buy the property. Most renters will take pride in the home and really try for the first year. Then, they will realize that they cannot come up with the down payment. In most cases, the tenants will stay until the end of the term, and then they move on. For the landlord, this is free money. Someone has lived in, maintained, and paid the taxes on a home that they can turn around and do the same deal again. Most pay a down payment of three to five percent too. All of this money is forfeited when they move, and the landlord pockets it all.
Home ownership and community renewal are what motivates most investment teams. The renter has some advantages too. Many don't have the money for a down payment, or they need to work on their credit. In both situations, this arrangement can be a win-win for all. Still, many are concerned that the incentives and conversion rates are not meeting the level of home ownership that they wanted to achieve.
Can Lease-To-Purchase Options Help The Economy?
There is a huge shortage of rentals in this country. Blackstone Group, a financial giant, is worried that investors won't take care of the upkeep of their homes they purchased. They are relying on these situations to negate their responsibilities. Companies that tend to be involved in the lease-to-purchase business are usually smaller, and they have a little niche in a big world of finance. The big players wouldn't even consider doing these rent-to-own programs. Some call this a small, dark, corner of finance where important lessons can be learned.
Is anyone looking out for the renters? What about all these companies that take advantage of them in their time of need? The Consumer Financial Protection Bureau helps those in bad rental arrangements. Republicans have mentioned getting rid of this fledgling agency, especially since they now have control of Congress. However, this agency is imperative to the renting market.
The Federal Housing Finance Agency Wants To Expand
Almost 75 percent of new mortgages is backed by either Fannie Mae or Freddie Mac. Executives over the housing finance system think that the government needs to have a less active role in the housing situation. There are various positions within the agencies, but the main contention is that the market can bring more mortgages to more people.
However, the head of the Federal Housing Finance Agency, Melvin Watt, is pushing Fannie and Freddie to expand credit. He wants them to widen the types of mortgages that they back from the private sectors. He feels the government is a responsible steward in the housing market. In the past quarter, Watt has made changes that allow both Fannie and Freddie to purchase loans for those that have made lower down payments on houses. This has loosened up the credit box that has been held by giant mortgage companies. In return, it has lowered the fees for the buyer.
Critics are quick to argue that the problem is not banks tightening their lending practices, but they say that it is a lack of demand. The middle class cannot afford homes. The economy is not paying people well enough to be able to buy homes at the current market value. Essentially, both theories are true. Credit is tight, but it will loosen up a bit as the economy improves, and although it has recovered, jobs are still not paying enough.
Reform With Caution To Forgo Another Housing Market Crash
When there is talk about loosening credit, it gives many people a sick feeling. They remember the past decade and the debacles of the housing market. Wall Street and conservatives are criticizing Watt for his actions. While most want reform, they want him to remember the housing crash. Did America not learn anything from this disaster?
The country has learned a lot since then. Private sectors were giving loans to people who were unqualified. Rest assured, Fannie and Freddie will not be doing that. Watt is making sure that things are being done as they should have been when the crisis was at its peak. Home ownership is important for wealth accumulation. The owner has a reasonability, the government only needs to play a mere role. The key is to do it right. The changes that Watt has made are important. Will the government be able to do what the rent-to-own private sector cannot? Only time will tell. Investors are waiting patiently for demand to increase, but they feel the lease-to-purchase option is not going to make that happen.
