MY MAMA ALWAYS SAID...
"If you can buy a house for $10,000 down payment or lower, buy it."
I am going to cover 3 points in this Blog...
Point 1: A rent to own means you skip the bank.
The way you buy a house with $10,000 is commonly known as a Rent to Own. There are 101 ways to do a rent to own but I'm going to be explaining the one Penny Kander taught me.
Basically, a rent to own means you skip the bank & the Seller plays banker for you. If you went to get a loan from a bank they typically require 5% down whereas a Seller may only need $5,000- $10,000 down to act as your banker.
#Example
On a $300,000 house you'd normally need to put a $15,000 down payment (5%).
On Rent to owns you give the $5,000- $10,000 as your down payment and the seller agrees to give you "ownership" of the house for 2-3 years and instead of making mortgage payments to the bank you make monthly payments to the owner. Now, this means over those 2-3 years you get the benefits of home ownership.
•You get the principal pay down credited to you.
On a $300,000 house you are paying off almost $800 a month on that mortgage which totals $14,200 over 2 years which will be credited to you towards your down payment.
•At the end of 2-3 years you have to get your own mortgage and pay out the Seller but you will have put $5,000-$10,000 towards your down payment initially plus the $14,200 that you have paid down the mortgage. You only need 5% down so you'll have your down payment at the end of the rent to own.
•At the end of 2 years when you go to the bank, you will have a record for 2 years to show the bank you have been consistently making the payments. Also, you can show them your rent credits and show them how much you have into the property and they will give you a mortgage.
Second Point: What happens if you don't think you'll be able to get a mortgage at the end of the contract?
If you aren't going to be able to close at the end of 2-3 years the first thing to do is ask the seller for an extension on your contract. Do this a few months in advance of its end date. IF the Seller doesn't want to extend the contract you typically forfeit your down payment and rent credits.
BUT KEEP IN MIND...
During the rent to own contract you have the rights of ownership of that property and at any point you can sell it, take your profits, and move on. Towards the end of your contract you will have almost $25,000 worth of equity.
Also in the 2-3 years, maybe the value has gone up and you can sell it for more.
You get the appreciation if the house goes up in value!
Third Point:
If you bought a $200,000 townhouse on a rent to own and you put $5,000 down for the Seller to carry the mortgage for you at the end you will have paid down the mortgage over 2 years by $11,000. That amount is credited to you! The Return On Investment is 220% on your $5,000. That's a 110% per year Return On Investment!
You'll have a $16,000 down payment in 2 years.
Bonus tip! You can do a rent to own on a suited property and rent it out and make cash flow!
If you've read my last blogs... you'll see why this is amazing.
TLDR (too long didn't read)
Rent to owns mean you now are a home "owner" for an initial investment of only $5,000 down! At the end of 2 years you now have $16,000 equity or you own a house. Rent to owns are great if you need time to qualify for a mortgage but want to start being a home owner and making money right away!
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