Comments on: Rent-to-buy

By: Joanna

Joanna — Fri, 27 Nov 2009 00:17:12 +0000

These days more families are thinking to buy their first house in this scheme. As you said it is the way to buy a house slowly, over time.It is a great way of building equity without taking mortgage now and for some people it matter.

By: Alice Matthews

Alice Matthews — Thu, 19 Nov 2009 23:12:37 +0000

Hi, I’m a landlord in the UK, and I’m finding our rent to buy properties are flying out! We are literally getting more people looking for properties then we have houses for! I think its a great scheme, and it helps people to get on the property ladder, in times when banks and the government are just not helping much! thanks for posting a great article!

By: dWj

dWj — Wed, 11 Nov 2009 19:36:35 +0000

If you set the option price low — perhaps 80% of what you expect the house to be worth 5 to 7 years from the beginning of the agreement — you can have a shorter-lived rental agreement in which the “buyer” is likely to have a significant amount of equity on the line as soon as the option is actually exercised. If you create a cash-out value for not exercising the option — say $10,000 — it’s even more likely that the buyer would, in the event of exercise, have equity on the line (or they wouldn’t have chosen to buy the house). In each case, you’ve recreated the forced-savings component of a mortgage, which seems likely to me to be a significant part of any causal reason homeowners have more wealth than renters.http://deansdough.blogspot.com/2 008/12/home-ownership-for-poor-and-bound edly.html

By: Steve Hamlin

Steve Hamlin — Wed, 11 Nov 2009 18:33:19 +0000

You’re advocating a lot of homeowners, who mightn’t have been qualified to be that, become landlords and decide on complicated real-estate transactions.Having an true sale with a lending intermediary might come at a cost (or lower purchase price), but removes much risk and complexity from the seller.In most of the examples, the seller remains a quasi-landlord, certainly takes the credit risk and has to be willing and able to foreclose. Not easy, and costly.In the U.S., courts have stopped efforts (like a pre-signed deed-in-lieu of foreclosure held in escrow to be recorded if the ‘buyer’ stops paying) that strips the occupying ‘owner’ of statutory foreclosure notices and rights. I suspect there would be similar issues with rent-to-own and Islamic leases – much more difficult than simply evicting a renter (which is not easy anyway).

By: Buce

Buce — Wed, 11 Nov 2009 17:56:39 +0000

Felix, you must have dropped your normally clear-sighted glasses in the sink this morning (and put on the rose-colored ones instead?). You’re talking form over substance. If the “transferee” (I’m being cautious here) can keep or walk away, he’s got non-recourse debt. If he is liable to pay whatever the value, he’s got debt. You can call it Micky Mouse or Mr.Magoo. If it quacks like debt, it’s debt.

By: James B. Shearer

James B. Shearer — Wed, 11 Nov 2009 17:41:35 +0000

These schemes mostly seem like ways for the seller to delude themselves that they aren’t actually lowering the sales price. What for example is the true value of an option to buy? 1% sounds pretty low.

By: SP

SP — Wed, 11 Nov 2009 17:23:46 +0000

“Then there’s a scheme I’ve heard of in Germany. Essentially it takes banks and mortgages out of the picture altogether, and sets up a long-term contract between the buyer and the seller. The buyer pays rent monthly, the house is essentially placed in escrow, and the buyer ends up owning the house after a set number of years paying rent.”You do know that a version of this happens in some places in the US too, structured as a loan? Seller-financing, details vary by state (I presuppose, haven’t lived in all of them)

By: Ginger Yellow

Ginger Yellow — Wed, 11 Nov 2009 16:56:47 +0000

“Essentially it takes banks and mortgages out of the picture altogether, and sets up a long-term contract between the buyer and the seller. The buyer pays rent monthly, the house is essentially placed in escrow, and the buyer ends up owning the house after a set number of years paying rent. “This is more or less how an Islamic mortgage works, although the title stays with the “lender” until all the payments are made.