Charlotte Property Management Weekly: Is Rent-To-Own a Scam? Wait-Who’s Laughing?

“I would never take advantage of a person like that, this whole rent-to-own thing. Taking a non-refundable, upfront option fee of thousands of dollars from them? Like my Broker-in-Charge said, it’s almost criminal!” (Concerned Charlotte Realtor)


“Are you crazy?” (Keanu Reeves)

“No, poor people are crazy. I’m eccentric.” (Dennis Hopper in "Speed")


“If you can’t spot the sucker in the first half hour at the table, then you ARE the sucker.” (Matt Damon in "Rounders")


Back in 2006 when life was good and real estate sales were plentiful, I got a call from a friend of mine from New York City. He worked in finance for one of the big firms and was doing pretty well. Typically, I listen to him talk about finance for a while and then he would ask the perfunctory, “So how’s work going for you?” As I would break into the wonder of rent-to-own homes and property management, I could hear his stifled yawns. This time was different.

Right off the bat- “Brett, what does the Charlotte condo market look like?” Well, the Charlotte condo market was booming; we had more cranes in the air than Dubai (OK, not really, but you get the point). I explained that many projects had broken ground (or were breaking ground), presales were a feeding frenzy, and everyone was bullish on the growth of Bank of America and Wachovia; the condo projects were selling out. Most of them wouldn’t be completed for a few years, but people were putting down deposits to get their share of the “Uptown Charlotte Dream.”

“So how much do they want to put down to lock into the option to buy one of these?” he asked. Developers were looking from anything to $500 to 5% to lock into a purchase price and the right to buy the condo several years in the future. He asked me to pick a condo building I liked and then to send him the contracts so he could lock down 3 of them. His strategy was to never actually buy the units themselves; he was just looking to sell his options for a nice profit to someone else. The construction lag gave him years to determine his exit strategy. He had done this in Miami and made around a $100K selling his options a few months prior.

So, why am I telling you this? I’m not trying to conjure tearful memories of a dynamic buy and sell real estate market. In fact, if it makes you feel better, he lost his deposit money because he couldn’t sell the options after the condo values fell. But I think it makes three interesting points in terms of making and losing money:

1. Buying options (for property at market value) in an inflated real estate market is a bad investment.

2. In an inflated market, buying an option to buy a property is a million times better investment than buying the property itself. Having the option to buy does NOT mean you have to close and take possession. Walking away (legally!) and eating the small loss for the cost of the option is a lot cheaper than trying to sell a property in a “Great Recession” market. (I should hear some “Amen’s” here)

3. Buying market-value options in a depressed real estate market is a great investment. Let me repeat myself. Buying options in a down real estate market is a great investment. That is basically what my friend did. He bought the Miami condo option before the market exploded and walked away with a $100K.

Back to the initial question: Is rent-to-own a scam? My question would be, “for whom?” Is it a scam in favor of the rent-to-own tenant who pays a few thousand dollars for the right to lock into today’s depressed value of the home? Or a scam in favor of the owner who gets thousands of dollars from a tenant who might not even buy it?

It’s much like another question: Is the blackjack dealer scamming you when you lose $10K, or are you scamming the casino when you leave the table flush with cash?

I would go with neither. There is no scam. Win-win transactions are made in such ways. In a rent-to-own deal, the seller gets a few thousand dollars, peace of mind that their mortgage is being paid while the market is terrible, and probably won’t feel badly even if the tenant doesn’t buy at the end of their lease. It works for the tenant as well. For a few thousand bucks, the rent-to-own tenant gets “options”- they can buy or walk when their lease is up. I would bet a lot of people would rather have an option now instead of having bought (like me!). How much would that be worth?

So no one is scammed. Maybe both are laughing?

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company” specializing in rent-to-own (lease options) and rent-to-sell homes. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” which details how to get the most potential buyers to your home in this challenging real estate market.