Rent-to-Buy Gone Wrong

A rent-to-buy, or land contract, is a great way for someone with less than stellar credit — or even no credit — to buy a home.  I’ve done a few of these over the years and for the most part it’s been a good thing.

The buyer gives me a down payment, at least $1,000, and I work out payments over a set period of time.  I include interest, property tax and insurance in these payments.  Interest is 10%.  I know, that’s a lot, but since these people are higher risk, they understand the reasoning behind the high interest.  And I make the payments within their budget.  We discuss this beforehand.

I’ve had three buyers default.  One got in an argument with his boss of six years and quit.  Another had a major health problem resulting in high medical bills, and couldn’t continue to make payments.  95% of the time, when people can’t pay, they just quietly admit it and leave.  They feel badly and know they must vacate.

On just one occasion, I had a buyer default and not leave.  He decided to stay to the bitter end, so I had to enlist the help of my real estate attorney and file foreclosure on him.  The process took about three months and cost me $600 in fees, but I got him out.  Unfortunately, the buyer owed meabout $2400 in payments by the time it was all said and done.  So, I’m glad I got a $2,000 down payment from him up front!

Also, he really disappointed me in the way he left the house.  Here’s some video I took after he left:

As you can see from the video, he not only left it a mess, he also took (stole) some things.  Frustrating, yes, but you can’t worry about the stuff you can’t control.  So I moved forward, and rented this home out to a wonderful guy who now wants to buy the place.  It worked out.

Doing a rent to buy is a great way to make money for yourself as a real estate investor, and to provide housing for people who can’t buy a home in the traditional way.  It’s worth checking into . . .

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