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Rent-To-Own in a Nutshell

Sep 12, 2008
Rent to own plans are becoming more and more popular these days. Rent to own classifieds on the internet are on the increase, with the opportunity to own real estate and not having to pay a large deposit seeming like an attractive option to many would-be home buyers who are struggling to save a large sum of cash. Rent to own policies can also cater to people with a bad credit status, who generally have a hard time obtaining a home loan.

Unfortunately many potential home buyers here do not have a great credit history. Rent to own is a great option for these people and works by letting the potential buyer rent out the house for a certain period of time as outlined in a contract. During the contact period the tenant must pay rent as usual, but half of this rent payment is marked as a credit towards the purchase of the house. At the end of the rental period, this credit is deducted from the house price; that is if the tenant decides to purchase the house.

Due to the legal work involved, a property attorney is always recommended when you are signing a rent to own contract so that you understand every part of the deal and are not taken by surprise at any time.

If the tenant decides not to buy the property at the end of the lease period, the entire rent money simply goes to the home owner as it would if it were a regular tenant renting the property. There is no obligation on behalf of the tenant to buy the house, unless the contract stipulates so.

Another element of the rent to own process is something called 'option consideration'. This is a non-refundable sum that the tenants hand to the landlord at the start of the lease, and it gives the tenant the right to purchase the home at the end of the term at an agreed upon price. Should the tenant exercise their right to purchase the house, the option consideration is subtracted from the purchase price of the house. If they do not choose to exercise their option, the landlord keeps the option money and begins the process again with a new tenant.

The seller is unable to sell the property to someone else whilst the rental contract is in effect. This gives the prospective buyer/tenant extra time to save money whilst knowing that they are not going to lose the house they want to purchase. Another contract provision is that the property price stays the same during the lease period. The buyer and seller must then agree on the closing price.

If the capital value of the house has increased during this time then the buyer is in a winning position due to the fact that they will not have to cover costs for the increased value of the house. If the lease period is a long one, this could add up to many thousands of dollars in savings.

Rent to own is a great policy for both would-be home buyers and sellers as there are advantages for both parties.
About the Author
Adem runs the real estate investing site ProfitPiggy.com where you can find detailed examples of the most popular real estate investing methods, real estate investing articles, courses, and more. Visit ProfitPiggy.com now to get started!
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