The rent-to-own home option has gained popularity in recent times due to various factors including a sluggish economy and an uncertain housing market. Rent to own comes with its own set of pros and cons. This option is best suited for buyers who are finding it difficult to secure financing and sellers who are finding it hard to offload their homes. Also known as a purchase option or lease option, a rent-to-own contract is usually drawn up for two to five years.
What does rent to own entail?
A rent-to-own home contract is somewhat similar to a car lease. The renter will have the option to purchase the home at a pre-determined price when the lease expires. Until then, the prospective buyer will be able to live in the house by paying rent to the owner. This rent charge is likely to be higher than what is normal because it will include a premium which will be adjusted towards the down payment if the renter decides to buy the home at the end of the lease period. If the buyer opts out of the purchase, they stand to lose this amount. Under the right circumstances, it can be a win-win situation for both buyers and sellers.
The Perks of Rent-to-Own Homes
A rent-to-own is the perfect method for a prospective buyer to gauge the worthiness of the home in terms of neighborhood and school district, as well as to obtain a feel of how it will be to live there on a permanent basis. Another reason buyers look at this option is if they do not qualify for a home loan for reasons of credit, have a low income, or find themselves without enough funds for a down payment. Opting for rent-to-own homes gives them the chance at home ownership that they might not acquire otherwise. For sellers, it is the perfect way of generating income while the house is on the market instead of letting it sit empty. This is a fantastic option for sellers who have already bought a home and have been unable to sell their old one.
The Pitfalls of Rent-to-Own Homes
If the buyer decides to opt out of the lease agreement at the end of the contract, they stand to lose the extra money paid as already indicated. Since the contract involves a future fixed price for the home, the seller stands to lose if home prices appreciate by the end of the term period. It will be the buyer’s loss if home values fall at the end of the lease period (but not if they plan on remaining in that neighborhood for some time to come). Also, there is a lot of uncertainty associated with the process because there is no guarantee that the renter will be able to afford to buy the property at the end of the lease period. When people say life is tough, this is just another indication of that fact being so.
Brenda Williams works as a real estate credit consultant with rent-to-own housing resource FindRentToOwn. She advises adamantly “it is essential to familiarize yourself with the fine print of a rent-to-own leasing contract before signing on the dotted line. For example, in some cases, the tenants may be liable for repair and maintenance. All this must be read and understood well.” She explains that a great many lease-to-own housing candidates fail to do this.
Every Situation is Different
Given the advantages and disadvantages of the rent-to-own option, it is safe to say that this is a choice that must be made after all the aspects are weighed and analyzed.
Resources
- Rent to Own: Use Your Rent Money to Get Started Owning Real Estate
- Fix ’em Up, Rent ’em Out: How to Start Your Own House Fix-up & Rental Business in Your Spare Time; or, Investing in Real Estate and Creating Wealth with Fixer-Upper Houses
- Rent vs. Own: A Real Estate Reality Check for Navigating Booms, Busts, and Bad Advice
- How to Rent Vacation Properties by Owner Second Edition
- Top Smart Home Devices
Recommended by Amazon:
- Rent to Own Essential Guide for Homebuyers: The Key to a Fresh Start and Richer Future
- Rent To Own Homes: Your Rent To Own Guide To Buying A Home, Selling A House, and Controlling Real Estate Using Lease Purchase Agreement
- Rent to Own: Use Your Rent Money to Get Started Owning Real Estate- Kindle Edition
Image courtesy of Stuart Miles / FreeDigitalPhotos.net
