Pros and Cons of Renting to Own a Home


Before we talk about the pros and cons of renting-to-own,” let’s clarify how a “rent-to-own” works. Renting-to-own is when a landlord agrees to lease out a property to a renter with an “Option Consideration” to purchase the property at a price that is specified in the leasing agreement after a number of years. To add the “Option Consideration”, the renter (potential homebuyer) has to buy a one-time non-refundable fee on the agreement. The price paid is generally a percentage of the purchase price of the home and is negotiable. In a fair contract, the fee that is paid for the “Option Consideration” gets 100% credited back to the buyer when the sale is completed and closed. So now, what are the Pros and Cons of renting to own?

Pros of Renting to Own

When homes on the market lose their value and continue to go downhill, homeowners who want to sell their home at a price that is still favorable to them will consider renting their homes out to eventually sell off their house. This is a favorable scenario for someone who is looking to buy a house, but is unsure whether the property they’re set on is something they really want– this gives the potential homebuyer an easy way out if the property value drops even more. Should the property value increase, the contract is set and the buyer can buy the property at a good deal. Moreover, the rental payments– if paid in a timely manner– will count towards the purchase within the agreed upon time frame of the contract.

Cons of Renting to Own

When you enter a rent-to-own contract, you need to stay on top of all rental payments; if you make one late payment, you break the contract. Essentially, all the equity that you had built going towards the eventual sale will be lost. Renting-to-own contracts also have details about the upkeep and maintenance of the property as well, so like your own home, you need to take care of those things– this varies from contract to contract. Renters who are serious about the property should be extra careful with contracts that have elements that allow the home seller to terminate the contract. Sometimes when the market picks back up and the house value begins to appreciate, this could be a huge incentive for the seller to want to terminate the contract.

It’s advised that if you are a renter who is serious about looking to buy a home in a renting-to-own scenario, to seek the advice and expertise of a good reputable broker (who has had experience with rent-to-own scenarios) and a good real estate attorney. With their experience they can shed more light into what you should be watching out for when negotiating the conditions of the contract. The real estate attorney will help to look over your contract as well as make sure you are covered and protected in case something unexpected happens.

Was this article helpful? Comment and like below. If you’re looking for different tips on buying a home, check out The 12 Steps of Real Estate Closing.

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