Rent-To-Own is a term in the real estate sector where the owner lease the property for a certain period to the tenant after which the tenant can also buy the property at the price already set. Also referred to as lease to purchase option, lease option or lease-to-own this is a very beneficial option for both the seller and the buyer.
Rent-To-Own lease enables the tenant to occupy the property as a resident on a rental basis and pay a monthly payment to the property-owner for a specific period after which the tenant also has the opportunity of buying the property. In this type of lease the seller who is having trouble in selling off his property can get the advantage. Also the buyer who is otherwise having trouble with his credit report gets the benefit.
This opportunity avails the buyers to have their own home by just making a small initial investment. This is usually as the security deposit for the property. And along with the first month rental they can easily start with the occupancy of the property that they want to buy. Meanwhile till the purchase period they have time to work on their credit report if they want to take loan for the purchase of the property.
Also they have the advantage of staying in the house prior to making the purchase of the property and see if it up to their expectation or not. Also the tenant gets to understand the locality and the neighborhood of the house better. On successful completion of the lease agreement sometimes the tenant is entitled to get a credit on the rental payments he made every month. This helps him in saving money for the purchase.
The sellers with Rent-To-Own agreement get an opportunity to catch the attention of the buyers for their property even during the down market. They get a handsome return to their investment on the property. The rate of the property is fixed at the time of agreement and do not change on the market value. This keeps both the owner and the tenant out of any stress for the rate of the property.
Apart from benefits there are some disadvantages also. The real estate investors are the ones who benefit the most here. Whereas the owners who just want to sell off their property has a disadvantage. It might be possible that once the lease period is complete the tenant backs off from the deal of buying the property. Many a times the market value of the property is higher than that fixed in the lease agreement and the owner loses his profit. This is mostly the cases when the owner only wants to sell off the property irrespective of the profits.
In contrast if tenant backs off from buying the property after the lease period is over then he can also lose on the credit amount on his rents. This loss can be another reason where the tenant still buys the property even after not finding it up to his expectations.
But still Rent-to-own has always been an excellent opportunity for the real estate investors who want to make handsome profits on the money invested. And also for those prospective buyers who have inadequate funds to buy a property. It is therefore advisable that one must understand the pros and cons of the option first before making a decision.
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