… How It Works.
Rent to own: Three words in the English language that would seem harmless enough… right? Understandably, you hear the phrase "rent to own" and imagine yourself financially tapped out, and in a dimly lit store with dingy carpet, signing an agreement to shell out $8 a week, until you’ve finally paid $2,300 to buy a sofa a retails for $700!
“Rent To Own” is nothing like that when it comes to buying a house.
Renting to own houses, or “lease-optioning” a house, as they say in the real estate business, is an entirely different business matter. Renting to own a house can be a dream come true… for both the seller and the buyer.
How It Ideally Works
You don’t rent-to-sell your house to become rich. You do it to avoid becoming poor. If you’re relocating for work, scaling up to a better house, or moving to adapt to some other life change and the market is preventing you from selling your home, then it’s something to consider. Unless you enjoy the prospect of paying two mortgages every month indefinitely, this is one way of minimizing the financial damage.
Let’s say you find someone who is interested in buying your house. But, they can’t do it because their credit isn’t good enough. In that case, this is how a lease option would work:
1. After securing the go-ahead and before moving in, your potential buyer will give you a healthy, nonrefundable deposit to go toward the down payment of the house -- typically, 3 to 7 percent of the purchase price.
2. The buyer rents your house for a period of time -- usually 2-3 years -- and during that period; they pay you an above average monthly rent. A portion of their rent also goes toward the eventual down payment of your house.
3. After 2-3 years, according to your agreement, your renter has the option to buy the home, with the down payment money going toward the purchase price, and since they’ve put a considerable amount toward buying it, they generally choose that option. If they don’t, the seller gets to keep all the down payment money.
4. Rent-to-own can be worth looking into for “would-be” buyers who simply can’t wrangle a mortgage the traditional way. Typically, that’s because you either lack enough cash for a down payment or your credit score isn’t strong enough to be approved for a mortgage (or both). With a rent-to-own agreement, you get more time to boost your credit and save up, all while getting a head start on building some equity.
Benefits to Lease-Owning Your House
Long-term tenants with a big “financial” stake in the game. They would be responsible for taking care of the property, along with the nonrefundable option fee. This helps reduce a lot of their risk if the buyer thinks of walking.
Higher sales price and rent for the home upfront. This works, even in a shaky market, because the tenant/buyer gets to start building equity from the get-go.
Huge market of buyers all the time. There is never a shortage of people who want to purchase homes, but for whatever reason are unable to do so in a conventional manner.
No realtor commissions. Landlord/seller can save the usual 5% to 6% commissions.
Higher quality of tenant. Because the tenant is the future owner of the house and has been screened accordingly, there is little concern for damage to the property.
Less vacancy time. The lease/option attracts a greater number of interested buyers who are looking to move in quickly.
Positive cash flow. Landlord/seller will receive a monthly cash flow from the tenant/buyer, rather than having the house sit vacant with a mortgage payment due.
Seller retains tax shelter. The same benefits that the seller has enjoyed in the past may still apply (seller should check with your accountant for specifics).
We'll be glad to walk you through every step of the process. When you contact us, we’ll provide you with a no-cost, no obligation consultation to determine if this option is best for you.
You probably have questions, but may not be ready to talk to anyone yet. That’s okay. We understand. Take your time.
In the meantime, you can email me at our Contact Us page with any questions and I’ll get back to you right away… or feel free to call me directly at (508) 859-1900 if you’re ready to discuss your situation today.