The Rent-To-Own Missing Link

Posted by: Chris Palmeri on June 21, 2006

I just got off the phone with Michael Shin, founder of National Home Buyers Assistance. He’s started a unique business that offers a way for people with really bad credit to buy a home. One of Shin’s local franchisees will acquire the house for the would-be buyer and rent it to them with an option to purchase. Hopefully at the end of a year the renter’s credit has improved enough that he can purchase the house from the franchisee, at a mark-up of 10-12%. The rents work out to be a little more than market rents too, but, to give the tenant some incentive at the end, the franchisee rebates half of the rent back—if they buy the house—to help with closing costs and a downpayment. Shin says he’s out to help folks buy homes in what’s become a pricey environment. “There’s nobody like us,” he says. “We are a missing link in the real estate industry.”

Shin, a longtime Century 21 broker, says he's got 111 franchisees in thirty states and could have 10,000 some day. He started in 2003. On top of an initial $30,000 franchise fee, the local operators pay Shin what works out to be 2.5% of the cost of the home. For that they get access to a single lender, PrimeLending of Dallas, and the benefit of his national advertising to generate leads. I have no idea if this concept works so if anybody has any experience with it please let me know.

Reader Comments

Gary Anderson

June 22, 2006 1:28 PM

I don't know anything about these loans. However, if one thinks that prices will tank, or that there could be a recession, it would be better to wait. Otherwise you are clearly overpaying with this program. Merrill Lynch is already predicting a 40 percent chance of recession because in large part the tanking of the housing market in bubble areas.

Sally

June 23, 2006 3:20 PM

Not new. This is Rent with Option to Buy, it's been around for decades especially in "poor" ghetto type cities like Detroit. So don't call this "new" or innovative. It's a desperation move to get middle-class people who have been priced out by high home costs to buy a house.

Nick

June 24, 2006 1:59 PM

It is a great idea because the only constant in our Universe is change and market change. One thing that has made our country so great is its abality to adapt creative solutions to changes. There is such a drift between first-time buyers and the rest. In Southern California, first tme buyers are pretty much out of the loop unless they downsize to a tiny 1 bedroom somewhere downtown.

Rent-to-own is a gret idea that might get more people in. However I pictured it not so much for people with poor credit but first-time buyers in general. I see so many of them come to me and just pass on buying because they can't make the average $3000 to 4000 a month mortgage payements.

As the market continues to change we will see more innovative ways of accessing homes in the future.

Great article.

Michael Shinn

June 28, 2006 3:41 AM

Chris....
Thanks for the article, but you missed some major points that make NHBA work: 1)the potential homeowner is able to pick ANY home that is for sale in his marketplace, 2)as a result, every Realtor, homebuilder, lender, or seller can call on NHBA to save transactions that normally might not close....everyone gets paid, and the buyer gets the home of his choice through a delayed option to purchase at a pre-determined price that ends up costing him not much more than a standard real estate commission, 3)our franchise investor does not purchase the home until it is pre-leased for a year with a 2-3% option fee paid by the optionee or the seller...the franchisee's cash on cash return generally exceeds 200% annually, because of the high leverage and predictability of the single family home, and the fact that the home is not purchased until the lease/option client is in place, 4)NHBA today collectively represents the largest buyer of single family homes in the nation and is highly respected in the real estate industry for providing a "missing link" that helps everyone involved with the transaction...the concept provides an alternative way for many Americans to achieve homeownership and draws from the entire housing stock for its inventory, 5)The NHBA franchisee is not subject to downturns in the market, because he generally owns the home for 2 years or less and has a very committed client in possession of the home, 6)to better understand why this Company is unique, go to its website: www.NHBA.com. Henry Cisneros, the former Secretary of Housing in the Clinton Administration, indicated he felt NHBA could accomplish in the Private Sector, what the Public Sector has long struggled to do....increase homeownership nationwide.

Gary Anderson

July 1, 2006 6:18 PM

The only "missing link" is the idiot who buys a house using this method in the housing bubble areas. We already have people selling with no RE agents because they have so little equity that they cannot even come close to market value if they have to pay a commission. The market has tanked, and as long as values DECLINE, I assert once more that this rent to own plan is not much better than a con.

Beckie

July 18, 2006 5:03 PM

My fiancee and I have been working with an agent for NHBA in our area for the past 2 months now. It sounded like a good idea at first, but I'm growing very agitated. They make it sound like "you" get to pick the house out, they get you in it and it's that easy. Well we've found 5 so far that we really liked and they've told us no on all of them so far. They didn't like the backyard on one, they didn't like the location of another, they thought one was overpriced, etc. Now here we are with 2 weeks left to find a place to live and we've been offering back and forth on another house for a week now. If it were up to me, I'd say screw it, but my fiancee is set on the program. I'm pissed, fed up and ready to be done with it.

Terrie

July 19, 2006 9:44 AM

I am interested in a rent with option house. My credit is not very good. However I do manage to make my rental payments. Please help!!

Sincerely,

Terrie

mn mortgage

July 21, 2006 11:17 AM

rent to own has been around for years but has been a bit more popular as people with bad credit have been wanting to get in on the american dream of owning their own home.

this benefits both the investor and the rent to own tenant, that is as long as the tenant pays the monthly rent on time or else it gets messy.

Nameh

August 13, 2006 12:33 AM

I recently had a similar company approach us to rent/sell them our home using this program. We are in the process of moving to another state, and are tempted but very hesitant to do this. Our house is in a nice neighborhood, and has been on the market for three months. Is there any disadvantage for a seller to commit to such a program? Is there anything that we should be aware of? Thank you and we really appreciate any input.

Beckie again

September 8, 2006 12:59 PM

Well here we are almost 2 months later and we're still waiting to get into our house. We finally found one, but we've been waiting for the family to move out. So now we have run into another issue with NHBA. We were set to close yesterday and they suddenly realize that they have the appraisal on the wrong house. So this is going to delay our move in date. We've been having to stay with relatives for the past 2 months waiting to move into this house. They have had 2 months to get their stuff together and finally find the glitch the day before we move in. My fiancee and I would have never used this program if we'd known how much of a hassle it would be. Maybe it's just the location we are using. My fiancee works in both real-estate and mortgage so he knows how it works. This company doesn't seem to know what they are doing. Here we were excited that we'd found them as our credit isn't all that great yet until we pay down some student loans. We much would have rather have waited. Do NOT use this company, there are other options out there.

Tekoa jackson

November 16, 2006 9:43 PM

Hello,
My husband and I are looking to move into a house but we have bad credit. No one wants to lend to us. I've read what you do.I was wondering if you could help us.

Collette

January 2, 2007 12:44 AM

How do I go about applying for your program?

Brian Young

January 9, 2007 4:35 AM

This Rent To Own program DOES work! As a realtor in Tacoma, Washington, we use it in the Pacific Northwest quite often! "You Pick The House, We Buy It, You Rent To Own." It's a win-win for all involved. A renter can lease a home (usually for 1, 2 or 3 years) with an exclusive option to buy. Normally we charge 10% above the purchase price as the option price, per year. We credit 50% of the rent toward the purchase price, which does pay for closing costs allowing the renter to have time to fix blemishes on his or her credit report and walk into a loan with zero down, and a credit large enough to cover most or all closing costs for that home. For investors, this is perfect because it allows the tenant to pick a house of their choice, the investor buys it as a lease option, and the tenant normally takes better care of the home than a regular renter would because there is some kind of "end goal" awaiting them at the end of the tunnel.

nancy sanchez

March 29, 2007 10:44 PM

I want to buy ahome but have bad credit

Hermides Arias

April 5, 2007 3:07 PM

I do not have bad credit, however I am just starting to build my credit. I would like to buy a house is it still possible.

brenda watts

May 24, 2007 9:28 AM

i would like to rent to own a 4 bedroom house either in mcgraw or marathon ,i can afford up to 500.00 a mounth in the country

brenda watts

May 24, 2007 9:29 AM

i would like to rent to own a 4 bedroom house either in mcgraw or marathon ,i can afford up to 500.00 a mounth in the country

John

June 7, 2007 3:36 PM

I suppose this indeed used to be for folks with bad credit, problem is, with the real estate prices being what they are. It seems like a slick way to get someone into a house the cannot really afford, or out of a house that simply will not sell (because of market prices)

Mark

July 14, 2007 8:17 PM

Does this work with land too? My wife and I have poor credit now and, wouldn't you know it, we found the perfect piece of land. I mean it's 10 acres inside the city limits and has ALOT of road frontage. All my research points to this property booking out quite well. We would like to build on it and would like to immediately occupy it and begin improvements to the property so that when the time comes it books out at the highest level. We are VERY serious and have major long term goals for it. Can you help? We should be able to be bought within the next 18 mos to two years with our current budget. She is about to graduate with her degree in nursing and is already contracted at a hospital for a 5 year term and I am an active duty, career soldier.

Tammy

August 9, 2007 4:54 PM

I would like to be put in contact with someone regarding this program. Please contact me. Thank you

rodney patterson

November 13, 2007 9:04 PM

Great idea, in a time of great market upheaval, the rent to own program is just the niche market for the DC metropolitan area! Can I get an investor out there to partner with me on the concept for this area!

Esther

November 15, 2007 10:06 PM

I am interested in your rent to own program.Please contact me as soon as possible.

pushrod

December 18, 2007 7:44 PM

Sounds way good to be true. Alot of questions. What if you loose your job, Become disabled, take a pay cut because of lay offs. Sounds to me that this is a easy way to put somebody in a house to make a buck fast. So if you default your back to square one. What I see is alot of people some good some bad screw their credit up. The good will wait untill they can afford it the bad will jump head first in it. Accept this program and you will loose.

therese

December 26, 2007 7:12 PM

I bought my house on a lease purchase 8 years ago and it worked for me. I love my house still

MNSS

December 28, 2007 1:30 AM

One of the major issues with NHBA strategy from what I have seen locally is they tend to buy properties at near market value. This doesn't help the capital investor nor the tenant buyer as there is very little incentive to cash out of a property that has little to no equity. NHBA might be a little more successful now with the housing market the way it is though.

willie

January 1, 2008 7:43 PM

Im in the NAVY and i will be retiring soon.And i was considering.Is there a good site to get more info?

Dan

January 29, 2008 12:24 AM

I would be weary of rent to own. I would say that in the majority of the situations the rent to own approach does not lead to home ownership for the tenant. Imagine a three year rent to own agreement. After three years most will still have poor credit and be broke from the inflated rent they had been paying. To make matters worse the property is 30% more expensive than the purchase price and probably much higher than market value. So its probably a smart move to walk away after learning a expensive lesson.

thongsai

March 22, 2008 3:32 AM

I want to know about rent to own.

Nancy

April 8, 2008 9:24 PM

I am not opposed to rent to own per se but how can one be sure that the property owner is actually paying on the mortgage.
So that you dont get a foreclosure notice, tenant needs to get out asap! Is there some legal way to protect yourself and be notified as mortgage payments are being made or not?

jac

May 2, 2008 11:38 PM

Normally would one have to invest $5000.00 purchase/sale agreement and rent to own contract and a rental contract of first/last. Explain the $5000.00 dollar bit thanks

Bethany

May 4, 2008 5:35 PM

Hello,
My fiance and I are looking for property to lease to own. I would love to know more about this program. Our lease is up in June and do not want to have to stay here any longer than possible.

Charles

July 23, 2008 12:18 PM

hello, i'm interested in this program but now that i've read some of the comments from other readers.its tough to decide. my lease is up in march of next year and i want to start looking now.can u help

David

November 14, 2008 10:45 PM

Be very careful with companies that make it seem easy. First of all you must have a "borrowing plan". This outlines what your income supports as an eventual purchase price, how much you can afford monthly, and what needs to be done to get you lendable. 2yearpurchase.com does this first, usually within 4 days. If it is determined that you will be able to borrow within the next 2 years, they give you approval to shop bank owned homes on the MLS. Once you have found one that fits within your eventual ability to borrow, they buy the home and you move in while executing your "borrowing plan" over the next two years. IF A RENT TO OWN COMPANY,REALTOR, OR OWNER DOES NOT SPEND TIME ON SCREENING OR QUALIFYING YOU, SOMETHING IS WRONG. If you pay the monthly rent directly to the owner, or if your option price is higher than market, you are letting them set you up for failure.

kurt

July 8, 2009 8:07 PM

why do people think this program is only for people with bad credit? how about people with good credit, but dont have a spare $30g for down payment + closing cost + commision?

Auntie Sandra

September 17, 2009 3:14 AM

I rushed to this site because I was told there was financial help. After reading I am skeptical.Is there a company anywhere that offers real assistance? My niece is a single parent. She works as a chef at a major hotel. She has not once been late in paying her rent in the house that she lives in. Her PROBLEM is she has a education debt with penalties, fees and interest that continues to accumulate. Her efforts to purchase the home she lives in have been denied for more than 3 years. Currently the reason is a "Loan to Value Issue".C'mon Loan Agencies "GIVE A WORKING GIRL A BREAK.

Toni

February 18, 2010 2:46 PM

My fiance and I are currently researching the rent to own incentives. I have heard of the idea before but I am just learning the prospect behind it. Sounds like a good idea, however finding someone that we could trust to help guide us through will be our main issue.

Toni

February 18, 2010 2:46 PM

My fiance and I are currently researching the rent to own incentives. I have heard of the idea before but I am just learning the prospect behind it. Sounds like a good idea, however finding someone that we could trust to help guide us through will be our main issue.

Toni

February 18, 2010 2:46 PM

My fiance and I are currently researching the rent to own incentives. I have heard of the idea before but I am just learning the prospect behind it. Sounds like a good idea, however finding someone that we could trust to help guide us through will be our main issue.

Toni

February 18, 2010 2:46 PM

My fiance and I are currently researching the rent to own incentives. I have heard of the idea before but I am just learning the prospect behind it. Sounds like a good idea, however finding someone that we could trust to help guide us through will be our main issue.

Toni

February 18, 2010 2:46 PM

My fiance and I are currently researching the rent to own incentives. I have heard of the idea before but I am just learning the prospect behind it. Sounds like a good idea, however finding someone that we could trust to help guide us through will be our main issue.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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