Definition

Rent-to-own deals may also be referred to as lease-to-own or rent-to-sell. They all refer to deals in which people pay a certain amount above the rental price of a home in order to pay less when purchasing the home. According to CNN Money, rent-to-own agreements often include up-front fees of about 5 percent of the purchase price, as well as an agreement about the time frame in which the renter may purchase the property (typically 12 to 36 months).

Cons

Financial experts are quick to advise potential buyers to tread carefully when entering a rent-to-own agreement. Many have been burned by making lease option agreements with homeowners who are being foreclosed upon, which results in renters losing all of the inflated rent payments. Also, you should make sure that you’ll be able to secure financing at the end of the rental period, because if you don’t the landlord keeps the money that would have otherwise been dedicated to the sale price of the home. Forbes writer Amy Fontenelle recommends protecting yourself by getting a home inspection done prior to entering a rent-to-own agreement, doing research on the seller and working with a mortgage broker to make sure you’re in a position to buy the property once you have the money saved up for a proper down payment.

Sellers

For sellers, the rent-to-own option is particularly attractive in a market where real estate sales are slow. Renting a property is a way of covering the financial burden of a home without resorting to selling at a low ball price. According to an article titled, Rent Now, Buy Later in the New York Times, rent-to-own deals bring cash flow to properties that otherwise might be stagnant. There is also relatively little risk for sellers; if the tenants decide not to buy, sellers pocket the cost above the monthly rent which was meant to be used for the price of the house.

Considerations

References

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