Rent to own and Building Credit

[Kozworth]

Hey there,

At this time in my life I am working full time while going to school. In the next 4-5 years, I should be in a position to leave the Dealer and pursue my career fully in Nursing. I currently live in Emmaus PA, and had a few questions about rent to own.

Now, living expenses out here are relatively cheaper compared to NJ where I moved from. It seems there are quite a few rent to own properties, and for me to be putting money away towards rent every month seems dead end. I would rather have my money invested into a house, even if I decide down the road to sell, my money that I have spent during the next 4-5 years would be towards something, as opposed to never seen again and my land lord that much wealthier.

Just a quick about me. I have my bills all paid up on time, everytime, and currently building some credit with an assisted credit card. I am 24, no car payment. Currently cannot get a credit card because i have "insufficient credit history" from pnc. Ive tried capital 1, and discover and the same issue.

If anyone has any recommendations on building credit, and any rent to own property experience, feel free to chime in. I have read a bit online, and it seems that this area is a free for all, and more or less a "as per scenario" kind of deal, so its pretty hard to tell without knowing someone who has went through this.

Thanks again, and happy turkey day.

[Coupelx]

The only way something like that would help your credit score is if they report to the credit score companies. most do not. I bought my piece of earth on a land contract as i was in the same boat as you. So its always worth looking into I think.

you might look into the paypal credit line offerings too. they were fairly lenient.

[doorman]

The only way something like that would help your credit score is if they report to the credit score companies. most do not. I bought my piece of earth on a land contract as i was in the same boat as you. So its always worth looking into I think.

you might look into the paypal credit line offerings too. they were fairly lenient.

The "rent to own" world is a bit different the. The standard lease/mortgage/etc.

I had to rebuild credit after a short sale and started much like you with a secured credit card. Slowly credit related things have been moving forward again. Typically an auto loan with co-signer would probably be the best. Start small, make approx 6-12 payments, pay off loan, repeat. Currently I'm damn close to where I was before the short sale. It's been about 4 years though.

[CENTURION]

This is what I would do If I were you.
rent a room for cheap.
save your money for a down payment, escrow all that jazz.
finance a used cheap car for no more than 2 or 3 grand. pay it off within a few months.
use that credit card, get a second one. use it. pay it off at the end of the week or day.
repeat, repeat, repeat and in a year you'll be good to go. nice credit and money in the bank, maybe even consider a condo.
they're cheaper and you can pay those off fairly quickly if you grind. Buy another home, rent out your condo.
bam

[jrossowvue30]

Like said before, rent to own is useless towards building credit because the seller more than likely won't report to the credit bureau. If you default they'll likely take you to court then you would have a judgment so it could really only hurt you.

I too have been rebuilding my credit. I suffered a devastating injury while in college and could not pay my bills. Looking back now I should have filed bankruptcy, but oh well. I had about as low a credit score as you could have, no credit cards, no auto loans, no apartments that did a credit check, etc, etc.

After a few years I was able to get an auto loan with a co-signer. Next I did a secured loan thru my credit union and just used the borrowed money to pay back the loan, then repeat. After a few more years I was able to get a high interest credit card which I use once a month and pay it off in full. My credit has come up 100 points in the last year and a half or so but I still have a ways to go before I can really consider my credit situation even okay.

If you really do want to invest in a home and feel you won't qualify for a mortgage maybe look into finding a property that is seller financed. Basically rent to own but there is title transfer upfront and the previous owner is the debtor. You'd more than likely have to come up with a down payment, which maybe you could put down as little as 3%, but probably more. You can always negotiate that. If you need help seek out a Realtor in your area, there may be someone who actually specializes in this sort of sale. It won't cost you anything and assuming you have a realistic shot to purchase a home they'd be happy to work with you. Even if there isn't anything out there for you it won't hurt to talk to a Realtor, better yet talk to multiple Realtors to see if any can help you.

I know the idea of paying the mortgage for someone else might seem shitty now but if only for a few years it's not the worst thing ever. In a lot of ways not having to deal with the issues of home ownership would be a benefit to someone who is busy with school.

[Kershaw]

You're going to get some really good advice at www.reddit.com/r/personalfinance

Rent to own sounds scammy to me, but I know nothing about it!

You can get secured credit cards for a very low amount, like $500. I'd look into that.

[mrsleeve]

Rent to own is little more than buying on land contract, which has been done for A VERY VERY Long time.....

[anabolice30]

This is what I would do If I were you.
rent a room for cheap.
save your money for a down payment, escrow all that jazz.
finance a used cheap car for no more than 2 or 3 grand. pay it off within a few months.
use that credit card, get a second one. use it. pay it off at the end of the week or day.
repeat, repeat, repeat and in a year you'll be good to go. nice credit and money in the bank, maybe even consider a condo.
they're cheaper and you can pay those off fairly quickly if you grind. Buy another home, rent out your condo.
bam

Never understood why you would want to rent out a property that is fully paid off. Why not sell it, and then invest the $200k or however much it is worth? That would grow your net worth much quicker than collecting $800 a month in rent, paying property taxes, and dealing with the hassle of upkeep and tenants.

I always assumed landlords just put their properties on 30 year mortgages then pocketed the difference. Unless there is something I'm missing.

[mrsleeve]

its called positive income generation. to some (like older people) the income is far more important every month that growing your net worth. In markets like mine the average small 2b1ba rental is about a Grand a month +, the cost to purchase the same type of home with a standard 30 year note and 20% down + taxes + insurance is leaves little room for positive monthly income, so you have to have a bunch of them to really make a living on it. This holds true for the most part all the way up, and the only time you can make any rental income, is during tourist season by renting out by the night or week for upwards of a gran a week or more depending on the home.

[anabolice30]

You mean to tell me a 2bd1ba in Montana is $1k/month? Crazy. But yea, I just rented a little cabin in the Smokey Mountains for $300/night. Looked up the address and the property last sold for $80k in 2010. Vacation homes are where the real bucks are at.

[mrsleeve]

where I live in mt if you can find a place with 2 shitters and allows for pets in a single family dwelling for less than a G a month you have done very well or its a huge shit hole that needs a electrical fire to burn it too the ground... Or like now it off tourist season so you can rent a place for 750ish but only till may or june then its gtfo till nov again while they charge that a week

I live in little SoCal with 6 months of snow

[flyboyx]

both of you make good points. personally, i have done both. i still have one rental down from 5. i kept it because it has waterfront just off galveston bay. it makes about 300/month. my tennents are a big pain in the dick. i wish i could kick them out. for now i just make peace as well as i can and bide my time for another 7 months until their lease expires.

the house flipping thing is good quick money but lacks tax deductions of any sort. our business plan is to buy a house with the minimum down payment our mortgage company will allow. borrow some money in the same loan to do a rehab. be out from under the house in 3 months and double our initial investment. we try to do 3 or 4 a year. here in houston, that translates into a 6 figure income before taxes.

so...advantages of house flipping are lots of profit in a short period of time. you don't have annoying tenants to call you in the middle of the night because they are too fucking dumb to relight a water heater. the disadvantage is that to make money you have to continually work your ass off.


with rentals, you make a little money every month and need the synergy of owning several homes to have a decent monthly income. the good news is that once the house is set up, there is generally not a lot of work to do. you can sit back and collect the checks. to own rentals, you need to have a downpayment for each and every one. generally at least 20-30% you have to save some pennies or get somewhat questionable loans to have enough of them. depending on your area, a good rental property will net 200-400+ a month. to make 5-10k/month, you probably need 25+ homes. that is one hell of a lot of shit to keep track of. you can always hire a management company but they charge around 10%. there goes a good portion of your profits.

[anabolice30]

What do you mean by little SoCal? Also could you tell me more about living in Montana? Particularly career oppurtunites that don't involve tourism or petroleum. Thanks!

[J.Rizo]

I have no advice on the rent to own situation, but for the lack of credit part, try getting a card from barclay through the Apple website, and then extend your credit line.

I've also heard a lot of people recommend best buy. no personal experience with that, but someone always mentions it whenever this comes up so I think its worth looking into.

[ST1G]

Hey there,

At this time in my life I am working full time while going to school. In the next 4-5 years, I should be in a position to leave the Dealer and pursue my career fully in Nursing. I currently live in Emmaus PA, and had a few questions about rent to own.

Now, living expenses out here are relatively cheaper compared to NJ where I moved from. It seems there are quite a few rent to own properties, and for me to be putting money away towards rent every month seems dead end. I would rather have my money invested into a house, even if I decide down the road to sell, my money that I have spent during the next 4-5 years would be towards something, as opposed to never seen again and my land lord that much wealthier.

Just a quick about me. I have my bills all paid up on time, everytime, and currently building some credit with an assisted credit card. I am 24, no car payment. Currently cannot get a credit card because i have "insufficient credit history" from pnc. Ive tried capital 1, and discover and the same issue.

If anyone has any recommendations on building credit, and any rent to own property experience, feel free to chime in. I have read a bit online, and it seems that this area is a free for all, and more or less a "as per scenario" kind of deal, so its pretty hard to tell without knowing someone who has went through this.

Thanks again, and happy turkey day.

1.) Why do you need to build credit?

2.) You're not going to "build wealth" over the next 5 years by owning a house. Paying rent for the next 5 years will not kill you financially whatsoever.

The way you're going to build wealth is via your retirement. If you're debt free when you enter the nursing field and we'll say you earn $30 an hour than you'll be making $4800 a month, we'll add a little OT and round that to $60,000 a year.

Say $1,200 a month of that goes toward the house you buy (25% of monthly wage) that leaves $3,600 a month for 'other things' including investing in a Roth IRA (for this example).

A Roth IRA is how you're truly going to build wealth for retirement. With a maximum contribution of $5,500 a year from age 30 to age 65 you would put in $207,500 (taxed) and get out $1,674,647 (tax free) when you're 65, assuming that you've invested in some mutual/index funds with a 10% return (which are out there). There is little risk in this as the 35 years the money is in the market will take out most the risk.

(If you were to put that same amount into a IRA and it would taxed on the backside you'd be paying a tax of $633,000 (1.6 million * .396) instead of the the taxes on the $200,000 dollars you paid into the Roth IRA. This is why a Roth IRA is better than an IRA in most cases)

That '$600' a month making your landlord richer isn't really going to matter. It's expensive to buy a house, in 4-5 years I doubt you'll really be making much money. What if in 5 years the market is down and you can't sell it for what you purchased it for? Can you afford all the other things that come with owning a house?

Stick it out renting, after you're a nurse and making a more reasonable income get a good investment advisor who can teach you about the different products out there and build wealth that way, along with owning a house that you can afford and you'll be well on your way to being very wealthy.

Just my $.02