Whats the Deal With Rent-to-Own?
It is expected when consumers reach out to me with questions regarding real estate that will help make hard decisions. But it isaggravating when that same consumer tells me they spoke to another realtor who didn’t inform them half as much as I did…I guess I should take that as a personal compliment. As far as a testament to the industry…..well….I digress…
So just what is the deal with Rent-to-Own properties and is it the right choice for you or your family both buyers and sellers?
The Agreement: A Rent-to-own is a very basic agreement. An owner agrees to sign a lease (1yr-2yr) with a tenant who at the end of the lease will purchase the property. During the lease period, the tenant will pay the owner the rent amount plus and additional agreed upon amount that will be used at the end of the lease for down payment on the home. Generally a tenant would be working on any credit deficiencies or saving money during the lease period to prepare themselves for the purchase.
Example: Rent = $1,000 a month – possible situation would involve $800 going towards the rent and the remaining $200 towards downpayment each month. Contracts can vary in every situation.
Here the deal on what’s at stake for each party.
Owner/Seller
The Why: Usually owners would choose a Rent-to-Own option in markets like the present one. Carrying expenses for an empty property is not a wise decision nor is it ever ideal. Bottom line generating income from a potential buyer for the property is the primary reason a seller would chose a rent-to own option.
The Advantages:
- Income (or mortgage payments on the property) while waiting for the market to change
- Having the tenant and a binding lease for a year
- Having a buyer at the end of the lease period thus removing any lag time between finding a new buyer for the property
- The property is no longer vacant or a target of burglary and/or vandalism
The Disadvantages:
- The property may not remain in the same sale condition with a tenant occupying the property
- If the tenant is unable to purchase at the end of the lease, the owner must face the choice of placing the home on the market with a tenant, renewing the lease, or dealing with a vacant property.
Buyer/Tenant
The Why: A potential home buyer would choose to enter into a Rent-To-Own agreement for various reasons. Probably the most popular reason would include taking time to address credit challenges that prevent securing a loan or just buying time to contemplate the uncertainty of purchasing as an option.
The Advantages:
- Extra time to save money and/or address Credit Challenges
- A “test-drive” of the house you would be purchasing
- A “test-drive” of home ownership.
The Disadvantages:
If your credit is very challenged, it may take longer than the lease period to strengthen
If you are still not ready to purchase after the initial lease, the landlord can exercise the right to NOT renew the lease
If you are not able to purchase at the end of the lease, the owner can keep the extra money paid in rent (down payment)
Before entering into any of these agreements, have a professional review all the documents. Remember, as a purchaser, you are still entitled to the same home buying process.
Oh…and one last comment…when you call a realtor, they should be able to EXPLAIN any and all process fully.
You can follow any responses to this entry through the RSS 2.0 feed.
