Rent to Own Offers? What Is Business Model?

9 years ago

I got an inquiry whether we would consider "rent to own" on the house we are prepping to sell. My answer would be, "Sure, buy it from us and the mortgage company and then you can rent it to anyone you want to."

BUT, I got curious ... checked the Internet carefully, and the inquirer has several houses listed for rent all over the state ... what's his business model? He is clearly renting out houses, not looking for one to live in.

1 - Using RTO to lock in a house for minimal cost while he looks for a buyer willing to pay more than he has invested?

2 - Using RTO to lock in a house and hope the value goes up, walk if it doesn't? And in the meantime, sublet it for cash flow? (rental estimate is about $400 above mortgage with 20% down)

3 - Using RTO for ____???

RTO usually comes with higher rent than usual (excess goes to "equity"), a large forfeitable deposit, AND you lose it all if you don't qualify for a mortgage ... usually has a clause prohibiting subleasing as well.

What's his profit model, or is he hoping to find a naive owner?

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Comments (5)

stolenidentity
9 years ago
Don't know what his intentions are. Why don't you ask him?? I would have just said no. In my experience RTO means the person wishes to own the home eventually, not rent it back out.
kirkhall
9 years ago
Prohibiting subleasing would seem to prohibit what it is you are supposing he is doing. The easiest way to find out if that IS what he is doing is to see in county records who owns title to those houses (him, or someone else).

Your first 2 are very interesting investment thoughts, but the prohibition of subleasing seems to rule them out, doesn't it?
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kabir
9 years ago
This is a scam frustrated realtors use to take advantage of a seller. I own many rentals and I get these calls a lot.
What they do is make you sign a commitment to rent and sell your house at any absurd value!. Then they advertise the house hoping someone will bite. They will rent your house for "x" dollars while pocketing the down payment(which what they are after(5-10 percent). 100 percent of the transactions never materialize and you get your house back after two to three years in a worst condition.
The real stuff is in the fine print that you will get your money if the house sells after the rent to own period is over. I have never seen it happen. They will ell you that they have a database of people who are looking for RTO and they are closely working with them to get their credit on track etc. All bull.
I find it amazing people who have no idea about things start giving advice like sublease stuff etc!!
palimpsest
9 years ago
I would never consider it under any circumstances regardless of what the motive was.
User
Original Author
9 years ago
We weren't considering it at all, but the explanation by kabir might be the best one. He's after the naive owner and the desperate would-be owner.

My sister did one RTO ... but they asked a tenant if he would consider buying the property he was living in (a 7-plex with a solid rental history) from them, not the other way around. And they did not do seller financing.

========
Although the "grab the down and keep it" is also done by sleazy owners who make sure that the RTO prospect is unlikely to get a real mortgage - they run through a series of RTO clients, keeping the down and the above-market rent every time.

Rent to Own Offers? What Is Business Model?

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