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How Do Rent-To-Own Real Estate Deals Work?

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How Do Rent-To-Own Real Estate Deals Work?

Renting-to-own has become a very popular concept following the financial crisis of 2008 and whilst it was previously mostly individual buyers and sellers who employed this concept, bigger real estate investment firms have started to follow suit as well. Of course, before entering into any rent-to-own agreement you should understand how it works. This article takes a look at the process from the perspectives of tenants, sellers and institutions.  

Tenant/buyer perspective

Rent-to-own is a concept whereby you rent a house for a specified number of years with the intention of buying it thereafter. Rental payments would usually include some extra payments that go towards the eventual down payment on the house. 

Here are some questions for you as a potential tenant/buyer to consider:

  •  Do you eventually want to own your own house?
  •  Is this an area you can see yourself settling in for a good number of years?
  •  What does your credit score look like? Renting for a few years can give you time to build your credit score.

In general, if you are not ready to buy right now but think this house and neighborhood would be a great place to live for a long time, a rent-to-own deal may work well for your needs.

Landlord/seller perspective

If you, as a seller, have been struggling to find a buyer for your house, advertising your house as rent-to-own may spark some new interest. Rent-to-own can benefit you as the seller because you can agree on a set price of sale without needing to worry about market fluctuations and the type of tenants you attract may be of higher quality, as they would probably treat the house with more respect knowing it will one day be theirs. 

Be sure to consult with your real estate agent to iron out the details of how the rental payments, down payment, and final purchase will work.

Institutional vs. individual landlords/sellers

Institutional rent-to-own companies, such as real estate investment companies, are publicly traded companies who offer lease agreements that are usually at least two years long with the option of buying the property after the contract is up. These companies often offer credit counselling courses for prospective buyers, which makes this an ideal option for people who struggle with budget planning or maintaining a good credit score. 

Though rent-to-own deals remain far less common than conventional real estate transactions, if the conditions are right it can definitely be a great deal for you.

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