The ad says all your rent counts toward the purchase, and the math does not add up
A scenario that shows up constantly and is worth walking through. A 3 bed in a decent suburb, advertised as rent to own. The ad says the house is valued at $340,000, $10,000 down, $2,300 a month, purchase price $365,000 if you buy within 24 months, and in bigger text, all your rent counts toward the purchase. On the phone, the story shifts. The $10,000 is an option fee and applies to the purchase, and $300 of the $2,300 is credited each month. So not all the rent, which is fine, as long as the tenant buyer understands what is actually being signed. The math: $10,000 plus $300 times 24 is $17,200 of credit against $365,000, so the buyer needs about $347,800 in month 24 through a mortgage. Market rent on similar houses nearby is about $2,050, so the buyer pays $250 a month over market, and roughly $6,000 of that over two years is the real cost of the credits, plus the $10,000, which is lost if the purchase never happens. Someone who wants to move from analysis to action should still get three answers first. Is the $10,000 gone if a mortgage cannot be obtained in 24 months, or is any of it ever refundable? Who fixes the furnace during those two years? And the $365,000 is 7.4 percent above today's stated value. Is that normal for a 24 month option, or is that the tell? What questions should a buyer be asking before letting this go any further?
