Rent-to-own is a lease option that allows the potential buyer of a property to rent the property before they buy it, the nearest you will ever come to a try before you buy in the property industry.
A rent-to-own contract gives the buyer (what may also be known as a tenant-buyer because they are tenants with the aspiration to home ownership) the right to buy the lease optioned property at a previously agreed price with a defined time frame.
To qualify for this privilege the tenant-buyer has to make their payments on time and treat the property as their own, i.e. carry out all said maintenance on the property and keep it in good order.
Rent-to-own is incredibly flexible, it can solve problems for investors as well as individuals alike.
Tenants who aspire to home-ownership are willing to pay more because they gain the following benefits:
- Their purchase price is fixed at the time the agreement is made, it will not change during the lifetime of their tenancy - they are not chasing house prices or ever-increasing demands for larger deposits.
- The tenant can treat the property as their own from the day that they move in.
- The time taken to the point at which the tenant can move in is much shorter than when buying using traditional methods.
- Every penny spent on super-rent (i.e. a rent that is higher than the normal market rent) goes towards the agreed house price just like an overpayment on the more widely used mortgage.
The tenant can decide the best time for them to buy and they can even decide not to buy at all.
If at the end of the term the tenant can still not meet strict mortgage lending criteria, it is possible to extend the term until they can, or until they can find another method through which to make the purchase.
From the investors point of view, lease options also have many advantages, for example a tenant-buyer pays a deposit of up to 5% of the agreed purchase price when they take over the property, thus providing a cash sum to the investor.
Tenant-buyers pay super-rent providing cash flow.
Tenant-buyers take care for and look after properties as if they were their own - after all one day they do aspire to own it. This keeps down maintenance costs and void periods. If they do not maintain the property (as part of the agreement) they forfeit the right to buy.
If a tenant-buyer defaults on payments, or decides not to buy, the investor may keep the deposit and all the super-rent as long as this condition is clearly set out in the option agreement and signed at the outset.
Helping potential house-buyers to move into their home without the worry of a mortgage is a satisfying experience and there are many benefits for both parties in this excellent win-win business.
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