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The Rent to Own Concept Explained

Illustration for article titled The Rent to Own Concept Explained

Are you a renter? Have you never owned a home? When you’re first starting out, it’s hard to decide whether or not to rent a home or buy one. Of course, financing plays a huge part in your decision process. But what about a rent to own option? And if you’re the landlord, is renting to buy something you’d like to consider? Let’s take a look!


What is It?

Before we discuss whether or not a rent to own agreement is right for you, let’s discuss exactly what it is. Generally, the renter and seller agree that the at some point in the future, the renter may decide to purchase the home. There is no guarantee, however, it is acknowledged as a possibility. A portion of the payments made by the renter to the seller will normally reduce the price of the final sale, if and when that takes place.


Advantages for Buyers

More Financial Flexibility

If bad credit is keeping you from securing a home loan, renting to own is a great option. Potential buyers can work on building their credit while they make payments according to the lease agreement. This means that when the time to buy arrives, the buyer is in a better position to receive a home loan or other financing.


Lock in a Price

If the sale price of the home you’re renting is appealing but you’re not in the position to buy, choosing a rent to own option sometimes means locking in that desired figure now, even though you may not make the purchase until later.


Sneak Peek

When you rent to buy, you’re getting a sneak peek at what life in this specific home would be like. Do you like the neighborhood? Does the basement flood during rainstorms? Are summers on the deck unbearably hot? Renting a space for an extended period of time gives you the rare opportunity to test drive a home before committing to the purchase. You may even be able to negotiate a lower purchase price with the homeowner depending on repairs or additional expenses.


Less Upheaval

Rental agreements can last anywhere from a few months to a year or more. But what happens when your lease is up? It generally means packing up and moving somewhere new. The hassles of moving can cause a lot of stress, especially if you have a family. Finding a nice home to rent in a neighborhood you like, with the option to buy, means setting down roots and finding a location to call home.


Advantages for Sellers

Tenants That Care

It’s difficult to find tenants that will treat your property like their own. Sure, they pay a security deposit and likely want that money back once the lease is up, but that doesn’t always guarantee proper and considerate treatment of your space. But what if those renters might one day call this space “home”? That puts a completely different spin on things.


Often, renters that may become buyers will put more care and consideration into maintaining a clean and functional space than renters that know they’ll be leaving at the end of the month. Rent to own tenants view the space as their potential, future home.

Higher Price Point

When you offer tenants a rent to own option, you can actually set the selling price of the home higher than if you were just to put it on the market. Why? Because you’re offering those renters an opportunity and it’s one that they’ll likely pay for. In most situations, the renter is the one in the driver seat in this partnership. If they choose to buy the home, great, but they don’t need too and can back out at any time. With this being said, offering renters the flexibility of changing their minds, means you can up the price slightly.


Larger Customer Base

If you’re advertising your home simply to renters, you’ll have a smaller customer base than if you open it up to the market for rent to own tenants as well. More options means more offers and more money for you. Not only is your offer appealing to renters, but also to potential buyers that may need additional time to build credit and gain financing.


Another Homeowner Option

The rent to buy agreement offers flexibility for both buyer and seller. Buyers can test drive the potential home while saving money and building credit. Sellers have access to a wider range of potential renters, can ask top dollar for their home, and find tenants that treat the space with respect. It really is a win-win!

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