Pitfalls of rent-to-buy schemes
Landlords and property investors are luring people into the promise of home ownership under rent-to-buy schemes with "little interest" in their ability to afford it, a property investment educator says.
Iain MacFadyen's comments come as Christchurch woman Paulene Gorlick faces losing thousands of dollars with the termination of her rent-to-buy contract.
MacFadyen said Gorlick, a long-term beneficiary, whose contract was terminated due to missed payments, had little chance of success from the outset.
The 45-year-old mother would never have qualified for a bank mortgage while on welfare, he said. "The tenant buyer needs to have the income to service the debt associated with the potential purchase. Anyone in property knows welfare is not income," MacFadyen said.
A spokeswoman for The Helmore Group, the company which offered Gorlick and her daughter the rent-to-buy property in Burnside, said the pair appeared "confident" and capable of fulfilling their obligations when they signed up three years ago.
Donna Hasson said: "They were absolutely desperate [and] their reasons for wanting a rent-to-own property seemed legitimate. They said the right things. We were led to believe that their income was more than benefits. We did not feel it was up to us to question what they were telling us. We can't assume ... that a beneficiary is going to be a beneficiary forever."
MacFadyen, the director of SmartMoveNZ, a company which offers lease-option deals similar to rent-to-buy arrangements, said there were "many pitfalls" of schemes "not designed for genuine success" and the "main offenders" were investors who had been to "below-standard" property investment seminars before being "set loose on the market".
"They may have good intentions, but when they make no effort to establish the affordability of the tenant buyer based on their income ... they are selling pipe dreams," he said.
Hasson said the Gorlicks were advised to get independent financial or legal advice, but chose not to.
The director of an Auckland-based property company, who would not be named due to "negative" associations with the rent-to-buy market, said his company stopped offering the deals last year because it was "too difficult" and for ethical reasons.
"It can be done legally ... but in the end the people need to be able to afford it and that's where it fails."
Hasson said The Helmore Group had terminated other rent-to-buy contracts in the past because "tenants sometimes do get themselves in a bit of a pickle", but the company's aim was "to get the tenant into the property and for it to become their own home".
"We have got rent-to-own tenants who pay on time every time and are very, very on track and understand that rent comes first. As with the Gorlicks, we gave them multiple opportunities to bring their payments up to date."
Christchurch Budget Service manager Dave Marra advised seeking advice before signing any contract and if it seemed too good to be true, "it probably is".
"When people are vulnerable and facing the housing problems they are facing now, a lot of these things look like a really good idea. [Rent-to-buy arrangements] create so-called business opportunities for the vendor, but not necessarily good opportunities for the buyer," Marra said.
Tenants Protection Association manager Helen Gatonyi said that while appealing, "for so many ... the idea of owning their own piece of [home] security is not economically feasible".
EVICTED RENT-TO-BUY FAMILY FORFEITS THOUSANDS
Christchurch woman Paulene Gorlick says she has been sold up the creek without a paddle.
Gorlick and her daughter signed up for a rent-to-buy home in Burnside three years ago, not long after earthquakes damaged the family's Merivale rental.
The base purchase price of the Burnside house was $350,000.
Gorlick agreed to an arrangement with The Helmore Group where she would pay $620 a week in rent, including weekly credits of $50 towards a deposit.
The expectation was that she would eventually take ownership by taking on a bank mortgage.
Gorlick, 45, and her daughter paid a non-refundable "option consideration" fee of $3000.
The weekly credits they paid were also non-refundable. The family's rent-to-buy contract was terminated on June 23, due to missed payments, meaning they forfeit thousands of dollars.
Gorlick, her daughter and son are fulltime guardians to a 6-year- old autistic girl, a 9-year-old girl wheelchair-bound from meningitis, and a baby.
Gorlick said they should never have signed the contract in the first place. Money was "tight", with income coming only from a range of ACC and Work and Income benefits.
"We did not have any money to contact a lawyer or get anything checked."
The contract made it clear that anyone who signed it without seeking independent financial or legal advice did so "at their own volition". Gorlick said the arrangement seemed "wonderful" at first, because the family was "desperate" post-quake.
It was "a huge mistake". "We are kicking ourselves. We let our kids down."
The Gorlicks were evicted this week, due to rent arrears, after a Tenancy Tribunal hearing. They must be out by Monday.