I know there are some very wise people here when it comes to finances. A company approached me this week about finding buyers/sellers for rent-to-own properties. The housing market in Portland is insane at the moment, with rents going up 25% or more per year. The city is waiving building permits of all kinds to try to encourage new construction, and it appears to be working, but not nearly fast enough. Homelessness is increasing and people who earn less than $50k a year are being pushed out of the region altogether due to the high cost of housing.
So here's the deal with this rent-to-own company: A buyer/renter will find a house that is currently for sale, with a market value of up to $650k. The buyer must first pass a $75 application process, which assesses debt to income ratios, income and criminal background check as if they were applying for any apartment complex. Once they have been approved, they are given a purchase approval up to $XXX,XXX and I will begin showing them properties that are currently for sale that they can make offers on.
Once the offer is accepted, the buyer/renter enters into a contract with the investor as a lease option agreement.
- Must rent for 1 year minimum before exercising the option to purchase.
- Rent increases are capped at 3.75% per year for 5 years. (Portland has seen double digit rent increases for the last 4 years with no relief in sight).
- The purchase price of the home will increase 5% per year or at market rate, whichever is lower, until the renter either decides to buy or moves away.
- The purchase price of the house is calculated based on:
1. Actual purchase price
2. Plus closing costs
3. Plus repairs completed prior to moving in
4. Plus 5% for each year after the first year the option is not exercised.
Obviously, this is not the most cost effective way to buy a house. I think for certain individuals who can prove a high income but don't have enough saved to qualify for a conventional loan or have too high of a debt-to-income ratio, this may be a good choice if for no other reason than the cap on rent increases year over year.
I also feel like the adult entertainer community could benefit from this program as a lot of us don't file our taxes. This makes it difficult to prove your income and therefore difficult to qualify for a mortgage. That way, a person can move into the house they want right away and begin working toward getting to a place where they can qualify for a mortgage.
So, what am I missing here? Aside from this being a pretty expensive way to buy a house, do you see any red flags here?



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