I'm sick of paying rent and want to buy my first property. I have no deposit and a bad credit rating

Q. I'm sick of paying rent and want to buy my first property. I have no deposit and a bad credit rating. Should I enter into a 'Rent to Own' contract?

A. Short answer is BE CAREFUL!

For those who don't know what a 'Rent to Own' or a WRAP is, let me pass on some pointers:

A Wrapper's client normally is:
 * A first homeowner
 * Without a deposit
 * In possession of a bad credit history
 * Frustrated with their current situation

A Wrapper will then:
 * Become the bank for the client
 * Get a normal rate loan (approx. 7.4%) and pass on a loaded rate (approx. 9.4%)
 * Help them find a property in the area they want to live
 * Purchase (approx. $250,000) and control this property via contract then
  - Re-sell that same property to the client at a loaded price (approx. $290,000)
  - Take the client's First Home Owners Grant as well.

If you are a first home owner and looking at this system, you should ask yourself are you happy that Wrappers will take your first home owners grant, load your interest rate and increase/load your property purchase price.

Remember, that if you miss a payment the Wrapper can exercise their right to cancel the contract, evict you and get another first home owner in and make all that money again.

Paul's tip:
Be careful of WRAPS!
Instead, consider buying a cheap property on your own by educating  yourself, cleaning up your credit file, saving a small deposit and getting a normal loan. As always when getting into property, you need to be in control from day one.

Source: “Ask Paul” which  is a regular feature  provided for Your Investment Property Magazine by Property Secrets where you can ask Paul for his thoughts on any of your property investment queries.


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