There are some very clever schemes out there, devised by self proclaimed property “gurus” that deserve to be treated with every ounce of caution.

How do rent to own scams work?

The scammers troll property listings which are not selling and they approach the owners, offering to buy the property at full price.

The catch is that they only purchase, under an option agreement to buy the property sometime in the future, with a right to sublease the property to a rent-to-buy tenant.

The seller is offered above market rent for the term of the option, with rates, water and insurance costs taken care of.

The scammers will look for a buyer- typically someone who can’t lend from a bank and they propose the rent to own scheme to the unsuspecting buyer.

They tell the buyer that they can purchase the property down the line, by paying an inflated price, when property prices would have “doubled” and that they can rent the property in the meantime.

The rental price will be above the market but the buyer is assured that half of it will go into a savings account, to establish a history of savings and the other half is deducted from the purchase price at settlement.

In addition, the buyer is told that they are liable to pay all outgoings on the property.

The dangers of this scam are:

• Dodgy operators will try to rush the deal through and only pay a very small option fee to the owner
• Buyers are not informed that all the costs of the deal between the scheme operator and the property owner are transferred to them
• Buyers end up paying double or even more of the rent but have no control over the property they are purchasing
• Any money the buyer pays to the operator can disappear if they default on one payment or are unsuccessful in securing finance
• Many buyers discover, down the track, that the property is only marginally worth more than it was when the deal started (or sometimes less)
• Banks won’t lend money when a property is overpriced or if it is a fire sale
• When the buyer realises that they can’t get finance, the option agreement is about to run out and the whole deal falls through
• The operator retains all of the payments made by the buyer (minus the rent) and in the end, the buyer is evicted and has nothing to show.

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