What is Rent-To-Own?
A rent-to-own agreement is an agreement between a tenant and a current owner of a property that allows the option (or obligation) for the tenant to purchase the property after renting for a certain amount of time there.
How Does Rent-To-Own Work?
In rent to own, you make payments toward a property that usually consist of both monthly rent and a small portion towards a down payment. Sometimes, the buyer/tenant makes an upfront fee as well to buy the home for a certain price at the end of the lease. At the end of your lease, you would then use the down payment towards purchasing the home.
What Are The Benefits of Rent-To-Own?
-Automatic savings for a down payment
– Can sometimes split costs between tenant and landlord
– Option to do what works for you at end of period
What Are The Potential Risks of Rent-To-Own?
– If you decide to move, you will lose the extra money
– If you can’t qualify for a loan at the end, you won’t be able to buy the home
– If you signed a lease-purchase agreement, you are obligated to buy the home
Types of Rent-To-Own Contracts
A lease-option agreement is the more flexible option, giving you the option to not purchase the home at the end of the contract. Usually when signing the contract, the tenant agreements to pay a percentage of the total purchase price spread across several payments. This accumulated sum at the end of the payment period would theoretically reduce the total cost to purchase the home. After the lease expires, the value of the home needs to be determined. This is done by an appraiser.
If the tenant chooses to move ahead with the purchase, they will need to get a loan depending on the appraisal amount. Depending on market conditions, interest rates, and several other factors, the amount that was initially thought of at the beginning of signing the contract could change significantly. However, if circumstances change, or you choose not to buy the property, you can simply walk away.
In this agreement, the terms are often very similar to a lease-option agreement, except you are obligated to buy the property at the end of the lease. There’s is typically an agreed upon price at the beginning. This is helpful because the tenant can then plan to do what is necessary to obtain a loan for a percentage of the set purchase price. However, it is riskier because if financial situations change, the buyer / tenant may not be able to go through with the purchase.
What Are The Benefits of Rent-To-Own?
– Take time to build up credit score
– Take more time for down payment
– It’s a built-in budgeting tool
– You are sure you want to stay in the area
What Are The Cons of Rent-To-Own?
– You are unsure that you’ll be able to secure a loan
– You are frequently late on payments / have bad credit
– You are not sure you want to stay in the area
Does Property Buyer Connect Have Rent-To-Own Properties?
We don’t often have rent-to-own properties. However, we interact with buyers and sellers of all situations. So, it doesn’t hurt to contact us to see what we have available. Whether you are a buyer looking for a rent-to-own property, an investment property, house to rent out, OR you are a seller looking to get out of a rent-to-own agreement, or are in any other situation, reach out to us to see if we can help.
Future buyers and current sellers of properties should carefully consider everything before entering into a rent to own contract. If things don’t work out as planned, it could result in lost time, money, and opportunity for both sides of the transaction.
At Property Buyer Connect, we have a team of sales specialists, lawyers, real estate agents and more than can help solve any problem you have. Give us a call today at 215-770-3122 or message us online.