the good and the bad sides to lease to own homes. Lease to own is also called LTO, RTO, rent to own, lease to own. But essentially what you're doing is you are leasing to own a home much like you lease to own a car. The good sides of lease to own I've gone through in a lot of my other videos.
The great side to it is, if you can't buy today for any reason, such as bad credit, you don't have enough down payment, you have too much debt compared to your income ratio. Maybe you just started your own business, things of that nature where you simply need to, what I like to call, buy yourself time, then lease to own is a fantastic situation.
Now, why not just rent? Why lease to own? Well, a couple of reasons. If you're going to lease to own it sets you on a program. It holds you accountable. Where a lot of people will rent for 10 years before actually taking the time to save up the down payment, or actively wanting to fix their credit, with lease to own you're on a schedule. You need to fix things in order to buy your home at the end of the lease.
It creates great accountability, as well as, depending on the investor that you're working with, a great system in place to help you save down payment or pay down debt or what have you. That's definitely a great side.
The other side is, when you rent you always have that temporary feeling as well as that, "I have to ask mom or dad if I can hang a picture in my room" feeling.
When you lease to own your own home, if you want to do renovations, if you want to get rid of the carpet and put in laminate floors, if you want to put in a new vanity in the bathroom, if you want to knock down a wall, you can do that because it's your house and you don't have to ask anybody about it. If you want to hang a picture in your house, put as many nails in the walls as you want.
It's your security. It's your property. If you hurt the value of the home, that's to your own detriment. Obviously, you want to do things to preserve it, take care of it. It's your house. It gives you that sense of ownership. Lease to own, there's a lot of great reasons on why you want to do that.
Now, why are some negative reasons on why you don't want to do it? Well actually, that's not the right way of putting it. Some ugly sides to the lease to own world, that is, simply you not doing your due diligence or teaming up with somebody who is very much out for themselves. Lease to own in concept is fantastic, and if you do it with the right person, that's a great situation.
I make sure I very carefully screen people that I refer you to to make sure that they are above board, and that they're on the level, and that they're really doing this because they want a good, safe investment, while at the same time they're helping out you and helping you to achieve your goals.
Now, what are some negative things that can be done, and what can you do about it to prevent these things from happening to you? Well, the number one thing that happens is that you'll get into a home that's, let's say, $600,000, but you never actually got pre qualified for $600,000. When the two year lease is up, guess what? You only qualify for a $400,000 place. What do you do? Nothing. You honestly can't do anything.
You now cannot fulfill the lease contract, which means you lose your initial down payment that you gave the investor. The investor gets to keep it. You lose all of your rent credits that you've accumulated throughout the two year or three year lease. They get to keep the house. You basically walk away with nothing, where, for the last two or three years you've just been paying inflated rent. That's it. You obviously don't want that to happen to you.
Now, what can you do to prevent that situation? Get pre approved. Don't get pre approved by somebody who's never even heard of or done anything with lease to own. You need to work with somebody who has worked with lease to own, understands the fundamentals of it, the different options that can be added to a contract, and most importantly, how long you're going to need, realistically, to fix your situation so that you can be able to afford the place that you get into at the end of your lease term.
Obviously, if you're working with a crooked investor, then they really don't want you to qualify. They'll put you into a $1 million home. You'll think they're the greatest things ever until your lease comes up and you can't afford it. Because now they keep the house, they keep your rent credits and they keep your down payment. That seems like a really good situation for them.