General Question

ItalianPrincess1217's avatar

How much is a typical down payment for a rent to own?

Asked by ItalianPrincess1217 (11979points) August 30th, 2018

Would it be unheard of to require a 15–20% down payment for a rent to own property?

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28 Answers

LadyMarissa's avatar

It varies from one owner to the next. Some require ZERO down payment where others are willing to have a percentage of the monthly rent applied toward the down payment. I’d venture to say that some who have been burned in the past would be more likely to require a larger down payment in hopes that the more you put into it, the more serious you will be down the line.

chyna's avatar

I’m probably not thinking this out, but if someone can afford that big of a down payment, why wouldn’t they just go through a bank and buy it? If they have bad credit, and the bank won’t loan them money at 20% down, you may want to look into their credit history also.

ItalianPrincess1217's avatar

@LadyMarissa Okay, that makes sense.

@chyna I was thinking the same thing. I figure most people’s reason for not buying a house is either because they don’t have the down payment or because they don’t have good enough credit.

KNOWITALL's avatar

In my area most rent to own are scams preying on the poor. Miss one payment and you’re out with no recourse.

If this is legit wanting to help someone get ahead in life who otherwise can’t, usually it is a portion of the reasonable rent each month.

JLeslie's avatar

Sounds off to me to require so much down payment, but I have no experience with rent to own.

Is the down payment being kept in escrow? I think it should be a “small” amount that would be added to a typical cash amount from a buyer if in the end they do wind up buying.

Rent to own makes sense to me for people who can’t secure a loan easily, or when owners are having trouble selling. When done right the tenant has the option to buy at any time during their tenancy, and the owner has the right to evict if the tenant fails to pay rent, and I guess maybe to keep any escrowed money. Escrow money can get tied up for years sometimes, needing a court of law to free it up.

Again, I have no experience with rent to own, I know people here know I worked as a realtor so I want to make it very clear I’m just guessing based on being 50 years old and having some knowledge of where advantages and disadvantages might be on the transaction.

Are you thinking about it as a seller or buyer?

ItalianPrincess1217's avatar

@JLeslie I was considering options if my house doesn’t sell by winter. I thought about the possibility of renting it out as a rent to own (maybe a 3 year lease with option to buy after the 3 year term is up). But the only way this would work for us is if we had enough of a down payment from the renters (non-refundable is normally how rent to owns work). So I’m just curious as to how much is normally given as a deposit in those situations. According to some articles anywhere from 2.5–7% is acceptable.

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JLeslie's avatar

@ItalianPrincess If they do buy the house then the deposit goes towards the purchase price?

Are the people who are looking at your house unable to get financed?

Will you make a lot of money on the sale of the house? If so the length of time you rent it out matters for tax purposes if they don’t buy your house. I’ll explain depending on your answer.

If they don’t buy, will the deposit be enough to fix up your house if they do some wear and tear? Do you get a security deposit too?

Is your realtor suggesting this option? I don’t think it’s a bad idea if it’s something that people seek where you live, but I think I would want to make it 2 years not 3. I don’t know if that’s possible.

You could just rent it. You can advertise it both ways in the MLS—for sale and for rent.

ItalianPrincess1217's avatar

@JLeslie Yes the deposit would definitely be taken off the purchase price but it would be non-refundable if they chose not to buy it after the lease was up or couldn’t get financing for the loan. I think most people looking for a rent to own are unable to get financing. But some are also unable to come up with a large deposit too. One person said they were going through a program at a bank that within 10 months would have them set up to have a down payment and also have their credit repaired enough to purchase. Rent to owns are very hard to find in this area and are very sought after.

Ideally, we would much rather sell. I would like to just take the cash and be done with it. I wouldn’t be interested in renting it out because of the landlord responsibilities that come with it. We’ll be moving away from the city and if there’s an issue I don’t want to be driving back here to fix things. At least with rent to own you’re able to put in the contract that they’re responsible for any fixes.

I would definitely need to save a portion of their rent in case they trash the place and end up not buying when the lease is up. Again, because of this I’m not sure I love the idea of rent to own. I could make a good profit if everything went perfectly but we all know things rarely work out perfectly.

KNOWITALL's avatar

@Italian Is the market so bad you cant sell or ? I’d definately sell otherwise and move on.

chyna's avatar

My suggestion, and I’m going totally off topic here so flag me if you wish. Take it off the market for 2–3 weeks, get a professional appraisal, and then go with a different realtor who works FOR you, not for how much money they can make by way over pricing your house. Make sure the new realtor will hold open houses to get people in to see your beautiful home and have it staged.

Tropical_Willie's avatar

@chyna I think she is locked in to her current realtor for a couple more months

JLeslie's avatar

@chyna Why do you think her house is overpriced? Most realtors prefer a lower price, it’s the sellers who want higher prices.

The OP’s house looks great and the price seems great, but I haven’t evaluated the market in anyway. I don’t know if she’s priced a little high or not.

@ItalianPrincess If you are willing to sell for less, then lower your price to get it over with. Although, I think you are at $109? So that would mean you would have to come down $10k to get under the $100k mark for searches, and that’s a lot to come down on that price point, so I’m not sure if you want to do that. If someone searches under $125k they get your house whether it’s $105 or $109.

chyna's avatar

@jleslie because in previous posts on this subject she said it was way over priced and they have reduced the price twice. I agree a good realtor would not over price a house. This is not a good realtor.

JLeslie's avatar

@chyna Overpriced is definitely a bad idea. I’m completely with you on that. Sometimes realtors overprice to get a listing, or because the sellers insists.

My only point regarding realtors pricing low, is obviously realtors make money when they sell the house, so realtors who only care about their own pocket would rather sell period, and if the price is fair market or lower they are more likely to sell. Believe me realtors aren’t counting an extra couple hundred in commission for a higher sales price, they just want it to sell. If it doesn’t sell they get zero. An extra $10k sales price the realtor most likely makes $150 more. It’s nothing. I’m sure you probably know that, I’m just writing for general information at this point for the Q.

ItalianPrincess1217's avatar

@KNOWITALL I know it’s slowed down recently in the city but I don’t think that’s why the house isn’t selling. It’s been on for 2 months now and we’ve had a lot of showings. Every 2 to 3 days we have showings booked.

@chyna I am unfortunately locked in with this realtor until January. I tried to get out of the contract but the broker wouldn’t hear of it. However we have considered taking it off the market soon for the winter and re-listing in spring with a new realtor. We were really hoping to sell quickly though of course and not to have to do this all over again next year.

@JLeslie What @chyna said was correct about the price lowering. We did lower twice. Initially we had listed at $129,900. I think that was too high for the area. So we lowered to 119,900. The realtor suggested we add in the description “value range” pricing meaning we will accept offers between $119—$129,900. No bites. Again we lowered to 109,900. She said keep the value pricing of 109–119 and we did for a bit but I just recently told her to remove that completely and just make it 109. I think the value range is unnecessary and may turn people off if they want to offer a little less than 109 and see that we will only consider offers of 109–119. I hope it helps. We just received feedback today that they weren’t interested because the price was too high. Whether these people are crazy or not, I’m not sure. I feel it’s at a good price point now and according to the realtor it is too. Some buyers want a brand new house for nearly nothing. So I don’t put too much stock in this one remark. But I am concerned that we’ve had this many showings and not one single offer.

JLeslie's avatar

Are other houses selling in your market? Or, is it stagnant in general? I assume your house is typically bought be young families. That market usually is hot in the summer, and slows down when school starts.

I don’t like the range either, better to just list the lower price.

I believed @chyna that you had lowered the price, I hadn’t remembered that.

Is the mortgage less than renting in your area? At your price I think buyers think in those terms. Mortgage rates are creeping up a little, but still low.

ItalianPrincess1217's avatar

@JLeslie From what I can tell the market might be a little stagnant now. It’s only going to get worse with the colder weather heading in. I’m wondering if it’s a bad idea to keep it listed through winter. After awhile I think people start to assume something is wrong with it.

Yes the mortgage would be cheaper than what the rent would cost someone. It’s probably about $300 less a month.

JLeslie's avatar

Hard to know what to do. I’d give it a little more time, but that’s not really advice, just a gut feeling.

LadyMarissa's avatar

After my parents passed, we discovered that we did better if we changed realtors every 3 months or so. We didn’t sign any contract for longer than 3 months & didn’t re up choosing to change to a new person for the next 3 months. That way we had new ideas & a new list of possible buyers. Two days after the 3rd realtor took over, the house was sold.

ItalianPrincess1217's avatar

@LadyMarissa I really like the idea of shorter contracts. I never thought of asking to change it from the average 6 month term.

JLeslie's avatar

@LadyMarissa Did they lower the price?

One thing about a new listing is it spams every body who is on an email list for a house that meets the parameters of a house. This is why usually the most activity you see is the first two weeks of a listing it can be with the same realtor. 3 months is a little short, but yes of course you can negotiate everything on a contract. How long the listing will be, the penalty if you cancel the listing, the commission. Everything. Some brokers will negotiate, some won’t.

More info: If the house is listed within a month of the last listing the days on market will be all added together. Some people think it’s better not to show a long time on the market for many reasons. The thing is, now with everything computerized you can see the listing history, so people will still be able to know it was on the market before if they look for the info.

ItalianPrincess1217's avatar

@JLeslie That’s good to know! I had no idea about it being all added together if it’s within a month. I definitely know about seeing the history though. That’s why I’m trying to be mindful of how long we keep it listed this season before pulling it off and trying again next spring.

JLeslie's avatar

You may want to confirm the within 30 days thing is the same in NY. That has been the case in every state I’ve lived in as an adult, so I’m making an assumption it’s nationwide. My assumption could be wrong.

ItalianPrincess1217's avatar

@JLeslie Okay, I’ll check on it.

KNOWITALL's avatar

Is is staged right? You can hire professional stagers and rent furniture, paint in neutrals and all kinds of things. We bought a house for 10k less, since they’d had zero offers in three months in winter.

janbb's avatar

@ItalianPrincess1217 I think you mentioned on another thread that you were facing surgery. Here’s some motherly advice, it might not be the best advice but here goes. Take the house off the market, get through your surgery and get your strength back. Then early next Spring, go with a different realtor, get some good advice on some simple changes you can make to the house and go back on the market. It doesn’t sound like you need to sell right now for a job change or forced move, so reduce your stress. You are fighting on too many fronts at once.

ItalianPrincess1217's avatar

@janbb We’d like to do that. Financially we really need to sell and get out of this house though. We might be able to figure something out a little longer and do exactly what you’ve suggested. It would be ideal, I just don’t want to go into foreclosure if we make the wrong choice, wait to sell, and fall behind on bills and mortgage.

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