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.
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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