Rent-to-Own Homes: A Way to Make a Home Sale Work

iStock 000016696172XSmall Rent to Own Homes: A Way to Make a Home Sale Work

With the collapse of the housing market, selling a home isn’t nearly as easy or as simple as it was just a few years ago. Housing prices are down across the USA and Canada, and many homeowners find themselves with a house that’s no longer worth what they originally paid. Buyers struggle to get mortgages with affordable down payments, leaving both the buyer and the seller with a dream but no way to realize it.

The right move for a homeowner with a buyer who can’t get a mortgage might just be a rent-to-own agreement. Lease-purchase agreements fell by the wayside during the housing boom because banks were lending freely. Today, lenders no longer offer loans to everyone who walks through the door. A buyer who could easily make the loan payments is often unable to afford the large down payment lenders currently demand. Rent-to-own is a way to make a property transaction work without a lender involved at the start.

The rent-purchase agreement allows the buyer to live in the home while paying the seller rent, and the part of the rent goes toward the home’s sale price. At the end of the rental term, the buyer can buy the home at the price both parties agreed on, and they’re already part of the way there. If the buyer still can’t get a loan at the end of the rental term, the seller can finance the deal themselves or keep the buyer as tenant. Either way, the seller is able to move and has income coming in, while the buyer gets a place to live and a chance to become a homeowner.

A seller who wants to advertise a potential rent-to-own deal can still use many traditional realty advertising methods, such as a local paper and real estate websites, to showcase their properties. Sellers and buyers who are unsure about rent-to-own or properties available with that option can still use a realtor or check MLS, a multiple listing service that links property listings from all over the United States and Canada.

Of course, lease-purchase deals come with some risk. The buyer loses the part of the rent they paid toward the home’s sale price if they can’t buy the house at the end of the agreement. Local housing market values are always subject to change, and the original purchase price the parties agreed on might not reflect the home’s true value when it’s time to close the deal. But both the buyer and seller can protect themselves by researching market value trends in the neighborhood. A nervous seller can ask the buyer to provide a credit history, rental references and proof of income if they’re concerned about the buyer’s ability to pay. The buyer gets the unique opportunity to thoroughly use and investigate the home before actually buying. Potential problems not revealed by a home inspection might pop up while the buyer is living in the property, giving them the chance to walk away.

As with all home sales and rentals, both the buyer and seller should look at the pros and cons of a rent-to-own agreement before signing on the dotted line. If done correctly, the agreement can greatly benefit both parties.

So have you ever considered doing a  rent-to-own agreement? Do you know someone who has tried one? What do you think the pros and cons are?


Comments

Rent-to-Own Homes: A Way to Make a Home Sale Work — 18 Comments

  1. We didn’t have much problem renting out our old house so we didn’t try rent to own. I would like to hear from someone who tried it though.
    In the US if you live in the house 2 out of 5 previous years, you don’t have to pay capitol gain when you sell the house. Rent to own seems like a way to lose that write off.

  2. If I was interested in selling a property and couldn’t for some reason I would definitely look into a rent to own agreement. What is better than having a dedicated paying tenant and someone who is willing to buy your home that you wanted to sell anyway? Rent to own agreements work in the Owners favor. Because, if the tenant does not pay on time or violates the agreement the owner gets to keep all the money and not sell the house. Buyers, in a rent to own agreement really need to make sure they are protected.

    • Great points. Yes there are definite advantages to these types of agreements for sellers. In fact there are probably more advantages for a seller than a buyer. But it can be a good solution for buyers if they protect themselves like you said. It would be times like this that investing in a good legal representation would be a good investment.

  3. As a seller, I would not be as interested in this despite hearing some success stories from real estate professionals. However, as a buyer it would at least warrant consideration. This is very interesting Miss T.

    • Glad I got your mind thinking. If I was looking for a house I too would consider this agreement. I really like the fact that you can try out a house before you buy it. That is really cool. I have heard so many horror stories of people buying houses and then finding out all of these things that are wrong with it. This is a way you can do a trial run legally.

  4. Interesting solution. Even with low rates, mortgages are still hard to come by. This could be a win-win for both sides. Seems riskier since there isn’t a third party assisting the process. Guess it’s up to each side to do their due diligence on the other. Is this a new concept?

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