People ask me how Rent to Own works. The best way would be to give an example. This example is from a couple of years back. This family were originally from Sydney and decided to sell up and move to Queensland. A few years later, they decided to move back to Sydney. They had started off renting in Sydney which was a bit expensive in comparison to Queensland, but as is our usual typical story, they had to move again because the landlord was selling. They also were looking after foster children and it was really important to them that they had a stable home for them.
The had little deposit $12,000 and the home in Campbelltown was a little smaller than what they were used to and it needed a little bit work. The wallpaper was old and ugly in the kitchen! But they decided to do it. They rented for a couple of years, the property was sold to them 25% higher than the current market when they signed the Lease Option contract. In the meanwhile, they removed the wallpaper and painted the walls and had a little bit extra to fix up the kitchen cupboards.
As they said to us ” We sacrificed a little for a couple of years paying higher repayments because we knew what the Sydney market was like”. After 2 1/2 years, they were able to refinance. As properties do in Sydney especially in Campbelltown area, they had an extra $100,000 equity. With that money, add a back porch and add an extra bedroom as the kids were getting bigger.
As long as you understand that it is more expensive than renting and more expensive than if you were able to go directly to the bank than I think we can work it out. As a guide, a house that you would rent for $650 usually would be the equivalent of $1,000 per week with Rent to Own. That’s why we recommend that you first have a look at a home loan and non-conforming loans and use Rent to Own as a last resort. Some people think that we just keep the rental payments the same. This would mean that the investor would be losing a lot of money and no investor would be prepared to do that.
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