I contacted a potential landlord yesterday about a home that's in our rental price range, and got the following response:
"The property is actually rent-to-own. The price is $X,000. With a 20% down payment, it's 1.6%/month for 50 months. For 12% down, it's 2%/month for 44 months. If you want to pay cash up front, we'll sell it for 80% of purchase price."
I have the 12% that I could put as a down payment, and we were planning to pay 2% of the purchase price in rent anyway. However, I can't decide whether this is a good deal. If you look at it one way, it's a short-term, 0% mortgage on 100% of the purchase price of the home. But if they're willing to sell the place for 80%, that could be seen as the "real price" and the total price we'd pay over 44 months would be 125% of real price. That's more like 12.2% interest (paid in a lump sum up front), which would be about the same as purchasing the home on a low-interest credit card.
At the same time, the alternative is paying the same amount to build 0% equity in a home where we'll probably live at least 2-3 years, in exchange for being covered if the water heater conks out or the pipes freeze. Even if we viewed it as a 12.2% loan, that's at least 50% of real price in equity, which is a pretty steep rate for an insurance policy.
As you can tell, I'm of two minds about whether this is a good offer or a bad one. What do you think?