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How to Avoid Scams in Rent-to-Own Leases

Rent-to-own lease agreements are a great option for homeowners and potential homebuyers alike. However, there are some pitfalls and dangers that potential home buyers thinking about signing these contracts need to look out for.

Most Don’t End with a Purchase

First of all, it is important to recognize that the majority of rent-to-own lease agreements do not end with the tenant purchasing the home. This may be due to several different reasons:

  • The landlord may have never intended to let them purchase the home in the first place
  • The tenant may have got evicted or violated the terms of the lease
  • The tenant may have simply decided the house wasn’t a good fit for them

Landlords with Bad Intentions

Another pitfall to consider is that some landlords never even intend to help the tenant purchase the home. Instead, they repeatedly evict tenants after the tenant has moved in for a few months and made improvements on the home. Then the landlord keeps the improvements and signs up a new tenant. To protect yourself, try to find out as much as you can about the landlord ahead of time. If possible, talk with past tenants or find out how many tenants have successfully purchased homes from that landlord under a rent-to-own lease agreement.

Check Your Agreement Thoroughly

The rental agreement may also make it too easy for the landlord to evict. Try to make sure the agreement doesn’t allow the landlord to terminate it early without having a good reason to do so.

Remember that these agreements are all written differently, and the tenant can insist on changing certain provisions.

Tenant Obligations

Tenants need to make sure they are fulfilling their obligations as well. Since the tenant is getting the option to purchase, it is normal for the rental agreement to require some obligations in return. For instance, tenants have to be sure to pay rent on time, and late payments probably won’t be credited toward the home purchase. Also, unlike most rental agreements, tenants are often responsible for performing maintenance on the premises. Lastly, tenants normally have to pay an upfront fee in order to receive the option to purchase the home. This is usually referred to as “option consideration” in the contract.

How to Protect Yourself

It is probably a good idea to check out a copy of the landlord’s credit report. The important thing is that tenants watch out for landlords with a reputation of making false promises and contracts that make it difficult to ever actually purchase the home. Due to these many risks and pitfalls, it is important to use a contract that puts all parties on a level playing field. We recommend using a fair contract, such as our rent-to-own lease agreement to ensure both parties’ interests are being protected.