I'm on a shoot in Miami today, but I'd thought I'd post some of your email responses to my "Rent to Own" blog post. Here they are:
"You will be doing a great service to your readers by digging deeper into the details of the rent-to-own industry. As good as it sounds, basically the people who offer these services are betting against a sub-prime renter and most often they win. I have seen this approach used several times in my old neighborhood and have not yet seen a house actually change ownership. Some houses have already cycled through several prospective "homeowners".
My understanding of the process is this:
-A prospective buyer with decent cash flow but credit that is too poor to qualify for a loan is offered a rent-to-own contract which will allow him to occupy the home immediately, and then take ownership for an agreed upon price if he can qualify for a loan within the term of the rental contract.
-The prospective buyer must put up a non-refundable down payment which is typically a few percentage points of the value of the home -The monthly rent during the option period is higher than a normal rental would be, but a portion of each months rental goes toward "equity" in the property if he is able to close (this is non-refundable).
The net result most often is that the prospective buyer either does not qualify or moves out of the area, forfeiting the deposit and any earned "equity", and the home reverts to the original owner. I hope to see a follow up article from you on any of your own findings."
"I would hardly say that "for rent" signs are a sign of the bottom. Its clearly a sign some people are moving on but who are these people?. These are people who have bought these properties for investment purposes and can afford to rent considering negative cash flow for at least a few years. but what about people who cannot afford to do so and what about people who cannot even afford to pay the mortgage for their primary residence, let alone investment property. Oct is the first month when the largest number of ARM's will come for reset and there are at least an equal number of ARM's resetting in the next 6 months.
Wait until OIL reaches and stays above $90 and watch out for retail sales this year and wait until March 2008. Then I will be ready to call a bottom."
And from Ryan:
"First off, great blog and great segments on CNBC--definitely my favorite. I have a quick comment about your “For Rent” blog. My opinion is the increase in “For Rent” signs going up is far from an indication of a bottom. In fact, it is a good indication that we have a long way to go before we hit bottom. People that list their houses For Rent because they think they can’t sell it are simply people that are not willing to lower the price to the current market that would allow a sale to take place. They are fixated on what they believe their house is worth when the true value is simply the price someone is willing to buy it for. When they do not get the price they want (rather than the house’s market value), they pull it off the market and rent it believing the reason it is not selling is due to current market conditions rather than the price. For this reason, I believe a bottom will not come until people start cutting their prices to the current market value which will trigger a sale. If enough people start doing this (rather than renting), we will get enough sales to bring down inventory and balance the market between sellers and buyers. At that point, we will have hit bottom."
And this from Jim:
"You speak of rent-to-own like its something new. We've had rent-to-own for a while now. We just referred to them as no-money-down-loans up until banks started requiring down payments again. On a no-money-down-loan, you don't pay anything up front, make your payments, and when you can't, you get evicted (foreclosed on). You haven't lost anything because you never owned a percentage of it to begin with. It's why I have a hard time feeling sorry for these same people when they lose their home. They were really just renting it anyway."
Questions? Comments? RealtyCheck@cnbc.com