Well, of course what you posted address rent-to-own schemes and not a straight forward owner carry financing that I started this thread about – good because I have some thoughts on it.
The article says such arrangements have been identified as predatory lending. I tend to agree. While I am sure there are some out there that are fair to the buyers, I have seen plenty discussions on RE investing boards who’s posters boast about taking advantage of buyers and recommend others doing the same. The term predatory lending seems a mild description of such practices, and some practices I have seen enthusiastically discussed should be criminalized in my opinion.
There is little I hold in more contempt in the business world then well healed sophisticated people taking advantage of unsophisticated people with few resources.
Please understand I am not accusing anybody on this board of doing anything unethical in this regard; I have never seen any posts here about requiring a large rent-to-own down payment and then kicking out the tenants a few months down the road for some cockamamie reason so the process can be started over again.
All the discussions I have seen here are about the Rent Credit Program. I have two thoughts about it I would like to discuss.
First is that it is very close to the basic rent to own scheme. So close that if it were ever tested in court, I guess it would be an even bet if would be found to be a scheme to disguise a mortgage or not, which in fact is what it is, if we are honest with ourselves, and is in fact why we do it. Yes, yes, I know the arguments of why it is not a mortgage by another name, like the Green Stamps theory and the fact it does not specify a certain home. But a smart judge would see the wink behind those arguments and might very well declare its “a mortgage by another name.” Or not. Who knows, the rent credit program does not move you out from under the Dodd Frank sword of Damocles.
In my experience, the big problem with the rent credit program is not that it could be found to be a violation of the dreaded Dodd Frank law, or that it is unfair to tenants, but that it is unfair to landlords. Well not unfair but not very good for landlords. Here is a question for you; If you are making enough profit from renting you POHs to pay back your capital you have invested in them, why after a good run of profits, would you ever just sign the home’s title over to your renters in exchange for worthless rent credit Green Stamps? Why not just keep on renting them and keep even more profits? To keep tenants from moving? When I had apartments, I had lots of tenants who had lived there forever. I recently went by an apartment building I sold in 2005 and was surprised to see how many of my old tenants were still living there.
Here is my main complaint about the rent credit program, which is the same for just straight out renting mobile homes: Since the tenant must pay lot and home rent, the home rent ends up being low, something like $300 or so. Hard to make money renting any kind of housing for $300 per month. And because it is low income housing rental, you typically are not going to squeeze much of a security deposit out of them, $500, maybe $1,000. But rent credit program or not, a lot of people are going to move out and leave the home in a mess, which after consuming the security deposit, will eat up many months of profits – and maybe the profits from their neighbors houses too.
OK, enough of that – here is my bottom line logic on the whole rent vs sell issue:
A lot of people in the rental market live lives of chaos and leave trails of destruction behind them. The only way to be sure to keep them out of your homes is to require something like $2,000 before they move in. The only way anyone will pay $2,000 to move in is if that $2,000 is a down payment on the home with a no hanky panky mortgage. You have two options for selling; (A) using a MLO if they are available and not price prohibitive, (B) taking advantage of the three exceptions per entity of Dodd Frank for owner financing, though it might run you afoul of the state’s implementation of the Safe Act.