Hey all, I've been doing some reading online and specifically on Reddit and other sites, and noticing that the general consensus on "Rent-to-Own" or "Rent-to-Buy" models are that they are bad. Bad for the tenants, bad for the owners, etc. etc.
I currently live in a rent-to-own situation which is rather unique, but I can't tell if I have convinced myself it's good for the wrong reasons, or if it's actually a good way to get ahead for me. So I thought I'd post here and have some people yell at me (or not?) to figure out if I'm heading down a good or bad path.
Backstory (skip to agreement if bored):
In July of last year, my lease agreement for a condo I was renting with a roommate expired, my roommate was moving on with his girlfriend, and so it was time to move. I took a look around at some places with my girlfriend but we were finding that the rental prices had become really egregious over the time we had lived at the other place, I'm talking $1500-$1800 a month for anything from a basement apartment to a 1 bed 1 bath condo.
After talking with some mortgage brokers, and a couple of realtors, and going out to look at a couple of properties, my dad sat down with me and we had a discussion about this thing he had heard about called Rent-to-Own and was wondering if I had heard about it or not, and that it might be an option for us.
Suddenly, one showing brought us to a modest 1 bedroom, 1 bathroom condo, listed for a reasonable price, in a nice neighbourhood in my hometown, and my girlfriend and I both were ecstatic about it. Only problem was, the list price was $325k so even if I pulled everything out of all my savings vehicles I definitely wouldn't have enough for a 20% downpayment.
The stroke of "luck" was that my dad had just finished selling his house, and had bought his own condo, for about half the final price of his house, downsizing. I sat down with my dad and showed him a plan, where if he took the $320,000 (+closing yadada) out of his profit from the sale, and bought this condo, I would rent it from him as his tenant. He took it one step further (something I wasn't expecting) and very generously came up with a plan where I would pay him VERY low rent (under $1000 a month), plus the same amount in payments towards the downpayment.
The Agreement (tldr):
So this is what we came up with.
Purchase price: $320,000 + closing fees (I underbid from 325 to 320 and the seller accepted) My dad fronted the money by buying the place to "lock in" the price.
Over the next 5 years, (now almost 4), I pay my dad extremely low rent (sub $1000 a month) which is just so he makes interest on the deal (we agreed upon him making 3.5% off of this)
I also include a second payment each month which goes towards the "down payment" of the down-the-road sale. Also minimum sub 1000 but I can pay more to pay things off faster than 5 years if I have extra money.
When it comes time where I'm ready and have paid back the down payment amount, my dad is going to sell me the condo for the same price he bought it at. So 320,000 minus the down payment amount I've saved up.
This all comes out to around 2028 I will buy this condo from him for $280,000 + closing fees.
Everything payment and money-wise is tracked in a shared Google sheet, and while we don't have a "contract" or any agreement since the end result will be a private sale between my dad and I (and possibly a bank for a mortgage for me), we are both aware and in wholehearted agreement of the terms.
Overall I'm paying 1. Very low rent 2. Also paying into equity by paying the down payment fund 3. I have an "interest rate" of 3.5% which is much much much lower than any bank would give me ATM. 4. I get to live in this place as if it's my own and I don't have a shitty landlord telling me what I can and cant do. 5. I have a very lucrative job in software and there will never be a situation where I can't pay or anything of the sort, which is also a large part of why he trusts me in this.
If at any point I decide I don't want to go forward, my dad and I will sell the condo and if it sells for more than "we" bought it for, I get the extra profit minus the 3.5% interest we agreed on; but regardless I will get back anything I have paid into the downpayment fund back. The only thing which would be lost is the "rent" (interest) I've paid to him which I would have lost double per month to a stranger anyways if I entered any other lease again.
All-in-all, I think what we've worked out as father-son is a very lucrative deal for me, and he has said many times now that he doing it purely because he wants me to get into the market and not have to rent, he wants to help me out and yes he's making a guaranteed 3.5% vs stuffing the 320k into an investment account and maybe making more maybe less (probably more but again, doing it as a favour to me).
I see this as an absolute win for me as a 26 yr old who wouldn't have been able to get into the market at this time without his help, and whether I buy the place in ~4 years and live here still or turn it into a rental property, or just sell it with my dad and take the profits - the 3.5%, I don't see any pitfalls.
Am I delusional??
P.S. Just to end off, I know that one of the things which will probably be brought up is the age old tale of family getting into money deals together and falling out etc. I just want to say that there is 0% chance of that happening, it's just the way my dad and I are, I wouldn't have entered into this agreement if I didn't trust him 100%.
Sorry for the long post but it was hard for me to convey the situation without some backstory.
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source https://www.reddit.com/r/RealEstate/comments/1adpv6t/renttoown_but_good/
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