By Leonard Baron
Most people buy real estate hoping that homeownership will turn out to be a good investment. But increasing wealth doesn’t always come with buying. The same is also true for rent-to-own scenarios, where caution is also highly recommended.
The main issue with this form of home buying is that in most metropolitan areas, only about 1-to-3% of available housing is a rent-to-own (R2O) offering.
Here’s the reason that’s a problem: The vast majority of wealth earned in real estate comes from long-term ownership. If in that small pool of R2O offerings you don’t find a property you really feel good about, yet you still enter into that deal, this is more likely to result in you not owning it long term, because that home was not what you really wanted in the first place.
Bottom line: You probably won’t increase your net wealth as a function of buying that property.
In addition, most people trying to do a R2O deal are trying this strategy because they’re not creditworthy enough to qualify for mortgage financing. If you can’t qualify, the bank is telling you that they have concerns that your financial picture may lead you to default on a mortgage loan.
My advice? Please, take their advice! Work on your creditworthiness. Get some credit counseling from a reputable non-profit credit counseling organization. Get your financial house in order. You are most likely better off saving your pennies and working on your creditworthiness so you can buy that perfect home with low interest rate, fixed long-term financing a few years down the road.
Also, many R2O deals are offered by investors who bought the property and are selling it to you so they can make money! Many of these investors ask above-market prices for the properties because they assume you have no other option.