Rent to Own Happens All the Time
Renting a home and being able to purchase it is not an uncommon practice. The most popular version of this plan is the lease with option to buy sometimes referred to as rent to own.
A lease with option to buy can be a great investment opportunity for those who might have credit issues or cannot get approved for a mortgage from the bank. It also has the advantage of stability because in this type of agreement, the tenant must give notice before they leave or if they buy the landlords property.
This discussion is geared toward the home seller, but we will talk straight to the home buyers in the future.
Before we go any further, let’s go over intent and terms.
First, what is the intent of rent to own.
When rent to own is done in an ethical manner, then the home seller has pre-qualified the tenant and knows that the tenant has a better chance of obtaining financing to buy the home. Tenants who become buyers are great.
The tenant-future home buyer understands that any money given upfront to the home seller is non-refundable.
The key to this real estate transaction is ethics. We will get to ethics in a little bit.
Disclosure. We are not lawyers or financial advisers. What does this mean? If you have any legal or financial question, contact a lawyer or financial advisor. There, that bit is done.
Where were we? Oh yah, let’s talk about terms we will use to discuss rent to own.
Home seller or Landlord
This one’s easy. They are the ones who own the home and want to sell.
Tenant-Buyer.
The tenant-buyer is the party who leases the home from the home seller and has the option to buy the home within a given time period. Are they technically a “buyer”? No. Because part of the tenant-buyer’s option is the right not to buy the home seller’s house. But for this discussion, we will use the term tenant-buyer.
Lease with an option to buy
. This is given the tenant-buyer a lease for a period such as a year, but also extending an option to buy the home. This term is usually called rent to own.
Option to purchase
. In a rent to own transaction, this agreement gives the tenant-buyer the right to buy the home sellers home within a given time period.
Option Fee
. An option fee is the money the tenant-buyer gives the home seller. The option fee is non-refundable usually. The option fee can be used towards the purchase price. The option fee can also be used as the down payment if the lending institution allows.
Our company, Lease Live Own, wrote a book on this subject. The book is called “30 Days to Find a Home Buyer”. The author was concerned that rent to own was being used the wrong way. In fact, he emphasized ethics into the rent to own process.
Rent to own, if done ethically, pairs a home seller or frustrated landlord with a home buyer who needs time to fix their credit. We recommend a short-term lease with an option to buy. No need to drag it out. Either the tenant-buyer can buy in a year or can’t.
Part of the success of rent to own is having the right professionals. These professionals can screen the home seller’s future buyer with all the legal stuff which is required for any real estate transaction.
In future discussions we will talk about marketing and the professionals you’ll need to complete this kind of transaction.
The benefit to the home seller is you lock in your price, you deal with a high-quality tenant who wants to buy your house, and you save on real estate commission which is a huge savings.
Rent to own, in some circles, has a bad reputation and for good reason. We at Lease Live Own, believe the following critical principles.
- Take the middleman out. This means the investor or real estate agent.
- Use aggressive marketing and do it economically.
- Hire the right professionals to make this happen. Most of these professionals will help without you coming out of pocket.
- Please be ethical. This subject is the most important.
OK, now you have a little idea of what rent to own done right means. More to come on this important and powerful real estate tool.