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How 'Rent To Own' Can Be A Great Option For You?

Sep 13, 2008
Real estate markets are experiencing difficulties in recent times and as a result many more homes are for sale. The problem therein lies that there are not enough buyers to cater for the vast number of available properties. Investors who think outside the square by considering a rent to own option rather than selling are avoiding long term disappointment that can result in selling your property during difficult times.

Rent to own can assist home owners with paying bills and other expenses that are taken care of by the renters. The tenants take care of the home and pay towards the mortgage with their weekly rent payments. This greatly takes the pressure off the owner during hard times.

Rent to own is attractive to people as they do not have to commit to buying the house right away, although they may be interested in owning it in the future. These options make your property more attractive than others and can attract more potential buyers. The tenant can cover some or all of your mortgage and may potentially turn into buyers one to three years down the track.

For buyers with a bad credit history, rent to own can be ideal as getting finance for a loan is hard. Even people with a good credit record can benefit from renting to own because it does not require the huge deposit of a home loan. Cash strapped buyers are therefore in a better position to save money whilst living in the house they want.

A prospective buyer can lease the house for two or three years whilst only paying a 2% down payment, compared with 10% or 20% when buying it outright. The monthly rent must be paid for the agreed period of time. If the renter then decides to buy the house after the rental period expires, the rent already paid goes towards the purchase price of the house, reducing the amount owed on the house.

Let's look at an example: you decide to put one of your rental properties up for sale on a rent to own basis. You find a tenant/buyer who's very interested in owning the house for himself and his young family, but has had a hard time securing a mortgage with the bank. The rent to own program works well for him as he's building his credit while he gets to live in the house he wants. He puts down $3000 on a house with an option to purchase the house for $150,000 at the end of a two year lease. You also agree to apply 10% of the monthly rent of $1200 to the purchase price.

At the end of the two years, the tenant/buyer decides he would like to purchase the house. His purchase price will be $150,000 - $3000 - $2400, leaving a final purchase price of $144,600.

The tenant may choose not to buy the house once the lease period is up, in which case the rent money simply goes to the owner as regular rent would. People with bad credit can actually improve their credit record during the rental period and therefore later qualify for home finance.

Rent to own is profitable for both owner and renter and both can benefit in the long run.
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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