Rent to own
is a real estate
term relating to a real estate agreement which is comprised of a rental lease
and a purchase agreement where the tenant
has the option to purchase the property
at a fixed price at a specified point of time in the future. It is also known as lease to purchase option, lease option, owner financing or lease-to-own.
The lease resembles that of a typical rental lease where the land owner, the lessor, allows the other party, the lessee, to occupy the property in return for a monthly payment. The option to purchase the property usually states the price at which the property is to be bought and the date at which the tenant is able to exercise the option.
Rent to own contracts typically become more popular during housing market downturns as landlords use them as a way to find good tenants. The seller entices the tenant by having a specified portion of the rent as a credit towards a down payment on the house, giving the tenant time to rebuild their credit if necessary.
Problems with rent to own
- As a buyer, if you choose not to buy the home you could lose the option fee
- As a seller, the buyer could back out of the transaction and not buy the home
- As a buyer, a rent increment might be put on top of the typical lease payment to cover the portion going towards the down payment.
Advantages of rent to own
- Renters are able to put money towards the equity of their home
- Renters are able to overcome possible poor credit situations
- Can help landlords find tenants in a down market and secure a good return on their investment
The concept of rent to own is not new, but with the one-two punch of the credit markets and housing crash, these contracts are becoming much more popular. In the first 11 months of 2007, roughly 700 homes were listed on the Charleston Trident Association of Realtors' Multiple Listing Service as available through rent-to-own contracts. This made up roughly 3% of the total listings which was significantly greater than the 1% it made up in 2006.