Nothing symbolizes the American dream more than home ownership. But these days, buying your own home is more difficult than it’s been in generations.
House prices have increased by 30 percent just since the year 2000. And over the last fifty years the average price of a home, adjusted for inflation, has more than doubled. Meanwhile, slow wage growth for lower-income workers, along with increasing rents and other prices, have made it harder than ever for potential homeowners to save up a down payment.
The crunch has hit all over the nation, but perhaps hardest of all in regions with available, affordable housing but low household wealth. In those areas, hard-working families and individuals often find it impossible to build high-enough credit scores and accumulate enough savings to qualify for a mortgage. And large numbers of African Americans are among those affected disproportionately.
The situation has led a number of companies to launch “rent-to-own” programs for would-be homebuyers who live in those parts of the country. They’re designed to serve applicants who should theoretically be able to qualify for a home loan in the next 1-5 years – letting them temporarily rent their “dream house,” and giving them the ability to purchase it once they’re ready.
However, some of those companies have been known to act with predatory intent, making it virtually impossible for the renters to wind up buying their homes, while draining their bank accounts in the process.
One of the latest entrants in the rent-to-own market is a company called Landis. It allows successful applicants to choose their own home, rent it for 12 months, and then purchase it from the company.
Is Landis trustworthy? Or just another scammer?
It will take a little digging to find out. Let’s start by understanding how rent-to-own works, and then we can figure out how Landis measures up.
The Basics of Rent-to-Own Programs
These programs work in similar ways.
Naturally, they’re all designed to earn a profit, and there’s nothing wrong with that. But the details of a company’s operations largely determine whether it’s actually trying to give would-be homeowners a helping hand, or if its only real goal is to make money.
The basic structure of a rent-to-own agreement is simple. It allows the renter to live in a home for a certain period of time, and then allows them to buy that home before the lease is up. In almost all cases, the rent-to-own company has purchased the house, so they’re the landlord – and they’re also the party that’s selling the home to the tenants.
Before we go any further, there’s one important legal distinction to clarify. The paperwork you sign for a rent-to-own property usually specifies that you’re entering into a “lease-purchase” agreement, meaning you’re promising to buy the home by the end of the lease term. That’s different than a “lease-option agreement,” which just gives you an opportunity to buy the house. That difference is important, as you’ll learn shortly.
When the company accepts your application, several things generally happen next.
- You choose a home that’s already on the market and the company “buys it for you,” as long as it meets the criteria they’ve spelled out. (There are some firms that already own large tracts of homes that they rent to participants.)
- You pay an upfront fee that’s non-refundable, and that fee can be steep. Some companies charge a flat fee of $3,000, $5,000 or $10,000. Others charge a percentage of the home’s purchase price, which may be even higher.
- You agree to pay rent for the lease term. That rent is usually significantly higher than average rent or mortgage payments in the area. The company agrees to put aside some of your total rent payments, to theoretically be added to your down payment when you’re ready to buy.
- Most companies provide “guidance” of some sort while you’re renting, supposedly helping you to save for a down payment and increase your credit score. The type and level of that guidance varies widely, though.
Most agreements allow you to buy the house at any point during the lease period, if you’re ready. When you do buy the home, you’re responsible for obtaining a mortgage that lets you pay the landlord/homeowner the full amount they originally paid for the house, plus a number they figure in to cover the growth in the home’s value during the lease term.
In other words, if the program paid $150,000 for the house, you may have to pay them $155,000 – because the property is theoretically worth more than they paid. What happens if the house has decreased in value? Companies handle that differently, but many still want the same payment, claiming it’s the “cost of doing business.” You’ll have to pay closing costs, too.
If the lease ends and you haven’t purchased yet that’s when big problems can start. If you signed a lease-option agreement but can’t afford to buy the house (or don’t want to), you can walk away. In most cases, though, you’ve signed a lease-purchase agreement that obligates you to buy. Companies approach that situation differently, but most often, they’ll keep the money they’ve been holding in your “down payment” account. They may also demand another payment to be released from the agreement. A few may even take you to court.
That should be enough information to make you extremely suspicious of rent-to-own agreements. There are a number of ways they can go sideways, and there are usually hidden costs galore.
However, that doesn’t mean all of these companies are out to milk you dry. You simply have to be extremely cautious and fully understand exactly what commitments you’re making when you sign.
Where does Landis fall in the spectrum of rent-to-own companies? Let’s find out.
Bottom Line: Most rent-to-own companies accept a limited number of would-be homeowners who are unable to qualify for mortgages, but appear to have promising financial futures. The companies purchase homes chosen by the clients, rent them to the clients for a set period of time (for higher-than-usual rental payments), and set aside some of the rent to be used as part of a down payment. By the time the rental period is over, the client has theoretically improved their financial situation, obtains a mortgage, and purchases the home. However, there are other fees involved, plus a number of potentially-dangerous landmines for the would-be homeowners.
What is Landis?
The company is a New York startup, formed a few years ago by two millennials with tech and real estate backgrounds, with $15 million in start-up money. Like most who set out to make their mark in the rent-to-own market segment, the founders proclaim that they want to “allow people to build their [own] future.”
Landis’s founders say that one of the policies distinguishing their company from competitors is that they set a one-year time frame for their program’s rental period, to encourage clients to purchase their homes as soon as possible. By contrast, many other rent-to-own services give renters as long as five years to convert to ownership. Landis contends those longer rental periods are designed to make money, by collecting big rental payments for years.
Landis works with a small cash reserve, which is why very few applicants are accepted into its rent-to-own program. In fact, that’s a common thread in Landis reviews submitted by prospective clients: they apply and are rejected for no apparent reason, or they never even receive a response. The company does not make internal details public, but the most recent data available showed that only a few hundred applicants were actually participating in the program.
The program is currently available in a limited number of metropolitan areas in Georgia, Indiana, North Carolina, Ohio, Pennsylvania and Tennessee. Most have a surplus of affordable housing and a large African American population.
Bottom Line: Landis is a relatively-small rent-to-own company that operates in portions of six states. It promises to help would-be homeowners who can’t yet qualify for a mortgage, by purchasing a house they select, renting it to them for a year, and selling the home to them once their financial condition improves. Very few applicants are accepted into the program.
Landis Rent-To-Own Program Details
The Landis program is a “lease-purchase” one, structured along the lines of the basic model we’ve outlined. However, as with all rent-to-own operations, the cliché applies: the devil is in the details.
Let’s run through the process from an applicant’s viewpoint, and then get to the pros and cons of how Landis works.
- You apply online, supplying basic information about yourself and your finances. Landis says it uses financial modeling to predict whether you’ll be able to improve your financial situation enough in the following twelve months to qualify for a mortgage. Those who have had a recent bankruptcy must wait at least one year before applying, and the waiting period is two years after foreclosure. Important: very few applicants are accepted.
- Those who receive preliminary approval must submit financial documents like tax returns, W2s or bank statements.
- If accepted, you choose the home you’d like to live in from those currently on the market. The house must be less than 30 years old, in excellent condition, and priced between $110,000 and $400,000. Landis then purchases the home.
- You can move in after paying Landis a substantial fee that can be $5,000, $10,000 or more, depending on the cost of the house. The rent will be at above-market rates, and a small portion of rental payments (about 10%) will be set aside in a “down payment account.”
- Landis provides minimal financial counseling, aimed at helping you improve your finances and save for a down payment, during the rental period.
- If you haven’t purchased the house after a year, Landis says it “may” extend the rental for another year. More likely, it’s time to fish or cut bait.
- If you can qualify for a mortgage, Landis sells you the home for 3% more than they paid for it, and adds the amount in the “down payment account” to your down payment. You also have to pay all closing costs.
- If you can’t qualify for a mortgage and Landis doesn’t extend your lease, you have to move out and Landis keeps half of your down payment account. That’s because, as we explained earlier, this is a “lease-purchase” program and not a “lease-option” one. You don’t have the option to simply walk away; you have to “buy” your way out of the agreement.
Complicated? Yes. A mountain of potential hurdles and problems throughout the process? Yes. Worth the risk? Only you can decide that.
What we can do, though, is look at the pros and cons in more detail.
Bottom Line: The few applicants accepted into the Landis program choose homes that meet the company’s criteria, the company buys them, and after paying a hefty fee, the applicants move in. They pay a high rent for one year, and if they improve their financial situation enough to get a mortgage, Landis sells them the house for 3% more than the original purchase price. Otherwise, they usually have to move out and forfeit half of the amount Landis has put aside for their down payment.
Pros and Cons of the Landis Rent-To-Own Program
Landis: The Positives
Let’s start with the biggest pro of all – which only applies to those who are able to quickly improve their income level and credit score, and save enough for a down payment. They’re able to live in a house they’ve chosen, while they’re getting their financial house in order. There’s a rather large price to pay for that privilege, in the form of a large move-in fee, high rent, and an extra 3% on the home sale price. Some, though, may feel it’s worth it.
Here’s another positive. Landis appears to stay within its financial means, only accepting the number of applicants it can afford to work with. If they extended themselves beyond their bankroll, they could be stuck with lots of forfeited homes – and be forced to resort to questionable practices to stay in business.
And here’s one more. Even if you disapprove of the way they do business or the high price that would-be homeowners have to pay to actually get into the house of their dreams, Landis appears to be a reputable company. The majority of Landis reviews posted by participants are negative, because of the rigorous and expensive rules of their program, or because they weren’t approved at all. But the company does make those rules clear, and appears to honor them.
Finally, you may not consider this a positive, but Landis shares the cost of major home repairs (anything over $200) during the rental period. Why is that a positive, when landlords are usually responsible for repairs? Simply because most rent-to-own programs require the renter to pay for all repairs.
Landis: The Negatives
You’ve probably considered many of the Landis details we’ve spelled out to be negatives, like rents that are well-above market averages and high buy-in fees. Truthfully, they’re simply the downside of all lease-to-own programs. In order to figure out the negatives of Landis participation, it’s necessary to compare Landis to similar programs.
- Landis accepts very few applicants, and doesn’t even respond to some who apply. That makes it virtually impossible to actually get into this rent-to-own program. Most competitors are willing to work with many more applicants.
- The company doesn’t clearly spell out the initial fee it charges until you’re actually “pre-qualified.” That makes it difficult for would-be participants to compare Landis’s terms with other rent-to-own operations. The initial fee, from anecdotal reports, is higher than some other companies charge – and often substantially higher than the down payment for a home would be with an FHA or VA mortgage.
- Landis will only buy, rent and eventually sell homes in very good condition. That makes it difficult for participants to find lower-priced homes which might be more affordable. Some programs are more forgiving when considering houses.
- Landis promises to help those in their program improve their financial condition during the rental period. That help is often passive, though. Some participants report receiving very little counseling or concrete assistance.
- Landis has a one-year lease term, while many other rent-to-own companies let participants rent for as long as three or five years. It can be extremely difficult to substantially improve finances in just one year, particularly after paying a huge buy-in fee and making very high rental payments.
- If a participant can’t get a mortgage after one year, Landis rarely extends the rental term. Competitors often keep some (or even all) of the down payment account at that point, but Landis takes 50% after just one year.
- When the participant is ready to buy the home, Landis charges 3% more than it paid for the house – even if there’s been a market downturn and the house is worth less than its initial price. Some competitors will reduce or even eliminate that surcharge in a down market.
The final negative essentially applies to all rent-to-own companies, particularly those that work on a “lease-purchase” basis.
It’s difficult for most potential homeowners to save up money for a down payment while trying to maintain or improve their financial situation and qualify for a mortgage.
Doing that while making a substantial up-front payment that can be $10,000 or more, paying a monthly rent that’s considerably higher than they’d normally pay, and knowing that they might have to pay more than a house is worth – with a deadline staring them in the face – can be more than difficult. It can be overwhelming, and perhaps even impossible.
Those whose financial condition is about to take a major upturn, perhaps because of an upcoming raise or promotion, might find the opportunity to get into their “dream house” a year early a godsend. Those who are simply hoping that they’ll be able to drastically boost their financial situation in a year, however, might find it a nightmare.
Landis: The Summary
Landis is one of a growing number of companies promising to give would-be homeowners with less-than-ideal financial situations the opportunity to live in a house of their choice while they build up a down payment and improve their finances. The company buys the home that a participant chooses, rents it to them for a year, and then allows them to purchase it when/if they can qualify for a mortgage.
Landis is a small company that operates in a small number of markets with large African American populations. It accepts relatively few applicants, and the price for participation is steep. Rents are high, there’s a substantial fee due at the start, they sell the home to the renters for a 3% premium (even in down markets) – all while the clock is ticking. If the participant can’t afford a mortgage after a year, they’re likely to forfeit more money and have to move out.
In short, the program can benefit some people. But Landis reviews from many others say it simply cost them much of the money they might have been able to use to buy a home on their own.
Landis Reviews: FAQ
Q: Is Landis a predatory program?
A: That wouldn’t be completely fair. Its model certainly could be seen that way because of the high fees and costs that participants face, and the high possibility that they’ll be unable to qualify for a mortgage after just one year. However, the terms of the program are spelled out pretty accurately, so we’d call it more “caveat emptor” than “predatory.”
Q: What do you need to qualify for the Landis program?
A: The company doesn’t make its criteria public, saying it uses proprietary financial models designed to determine future financial success. However, it appears that a credit score of 550 and average income of around $40,000 are requirements. Even so, some applicants who meet those standards say they were rejected with no explanation.
Q: Will Landis extend my lease if I’m not quite ready to get a mortgage after a year?
A: The company says it will consider those cases, but there are very few anecdotal reports of that happening.
Q: Who should consider using Landis?
A: Probably only those who expect a major improvement in their financial situation within the next 12 months, and simply can’t wait to move into a house they have had their eye on. And even those people should compare lease-to-own programs before choosing Landis.