Tag Archive for 'rental'

Everything to Know About a Rent-To-Own

 

When the housing market is being difficult to sell a home, one can consider Rent-To-Own as an option. For those that are not familiar, here is a quick run down on how it works.

The process normally begins where the owner of the home puts the property for sale because they may not be able to afford the payments anymore. The home has been on the market for months, and the finances are becoming too much. Now the owner is getting desperate to sell, but doesn’t want to lose any money. This would be the time to consider a rent-to-own option.

Before an agreement, the owner has to make a decision on the sale price and rent they are charging for the house. Both amounts are open to negotiation, similar to a regular sale. The owner must remember that once they sign an agreement, the sale price is locked in until the end of their rental term. The term can be between one and three years. Even if the housing market prices rise or fall during that time, the original agreed-upon sale price is final.

The renter will also pay rent premium and an option fee. The rent premium is an amount just above the typical rent. A part of that money goes towards a down payment. The option fee is a set amount the renter will pay the owner. If, at the end of the lease, the renter buys the home, the option fee converts as a portion of the down payment. If the renter decides not to buy the home, the option fee becomes income for the owner.

Some general tips when choosing a renter are:

  • Make sure to have a thorough contract. The contract should be reviewed by a real estate attorney or expert. A good contract will address any possible issues that may arise during the agreement. The contract should include who will be responsible for home repairs, maintenance and any missed payments.
  • Check the background of the renter. The owner should run a background check on the renter reviewing their credit, employment and salary history.

Advantages

  • If the value of the home is dropping, the owner can lock in the higher price at the beginning of the agreement.
  • The owner can ask for higher rent because of the flexible financing terms.
  • Renters that are looking to own treat a home and community better.
  • If a renter backs out of the agreement, the owner still has the option fee and rent premiums as income.
  • While the owner still owns the home, they can take advantage of tax benefits.

Disadvantages

  • If the value of the home is going up, the owner already locked in the lower price at the beginning of the agreement.
  • If a renter breaks the agreement, the owner is back to paying the mortgage.
  • If the renter doesn’t pay, then the owner needs to prepare for eviction.
  • The owner should regularly check the home to make sure the renter is treating the property well.
  • The seller is still responsible for the home.