Advantages and Disadvantages of Rent to Own

Rent-to-Own- Advantages-Disadvantages

Rent to own deals look and feel very similar to regular home sale deals but with a little twist. Both buyers and sellers can benefit from these deals under right conditions.

 Rent to own deals are a little more complex in comparison, hence it’s always a good idea to get properly informed before engaging into signing a contract.  

In this article we cover rent to own transactions involving a home but there exist other types of such agreements. 

So, what is this rent to own? Essentially, it is a way to buy or sell something, in this case a property, over time instead of immediately. Its an agreement in which you rent a house for a certain period of time with an option to buy it. Such agreements consist of two parts: a standard rent agreement and an option to buy. Below we cover important things one should know before getting involved in rent to own agreements.  

Who are the best candidates for such agreements? 

Rent to own agreements are attractive to buyers who are not in a position at the moment to afford a house but expect to improve their financial situation in the following years.  

Buyers who do not qualify for a house loan can start by buying a property through the rent to own agreement while working on rebuilding their financial situation and improving their credit scores together with saving money for a down payment. 

  • No refundsThe option premium is not refundable, but it can be put towards the ultimate house price should the buyer decide to buy the house. Larger than 5% option deals can be risky for buyers as should the deal not go through for whatever reason, they will never see the money back. This is why good advice is essential. 
  • Monthly paymentsThe potential buyer will be making monthly payments to the seller that serve as rent but will often pay a little extra each month. That extra money is usually credited towards the agreed purchase price, which means the buyer will need to come up with less money at the moment of the purchase. These extra payments are also not refundable and serve as a compensation to the seller as they cannot sell the property to anyone else during the rental period and there’s no guarantee the renter will actually buy the place.  
  • Maintenance. Whether we like it or not, a house needs to be maintained. But who is responsible for paying for the repairs within the rent to own agreementIf you are considering getting into such a deal, make sure this is clearly stated in your contract. It is common practice to say that everything that falls below a certain amount, say $500, is the responsibility of the buyer, however it is wise to get informed about local laws as owners are often required to provide certain amenities or pay for certain types of repairs. 
  • As with any agreement, there are advantages and disadvantages. If you are considering a rent to own agreement, make sure you get informed well and have your contract checked by the real estate attorney. This is the best piece of advice we can give you and wish you luck in your journey to buying or selling a property!