Rent to own is an alternative way to buy and sell a home – it’s not the ‘only’ option, nor is it always the ‘best’ option for some people. In some situations it can be unnecessary, and others it’s the perfect solution to homeownership. Unfortunately it can have a bit of a negative stigma due to a lot of amateurs and con artists out there giving it a bad name. In this article I’d like to share the ‘pros’ and ‘cons’ of a rent to own deal, so you can learn more of if this is the right approach for you.
Let’s explore the positives of a properly set up rent to own transaction.
- Having A Locked-In Purchase Price: Having a ‘locked-in’ purchase price in a quickly appreciating market means exactly what it sounds like – that the buyer is ‘locking in’ a great price here and now. The benefit of this, found on the option to purchase agreement, will give the person who is ‘renting to own’ the first right to purchase the property. It’s one of the ways to secure the deal as someone who’s trying to do a rent to own: The seller gives up the right to sell to anyone else, until the agreement expires.
- Do What You Want: You get to live in the home and make improvements – it is yours after all! If you weren’t doing a rent to own you would be renting anyways, so it makes sense to rent the home you are going to buy if you don’t qualify for a traditional mortgage. On top of that, you only have to move once instead of relying on other factors that could cause less stability in the rental market (ones outside of your control).
- Connect With Your Community: A lot of families find this part beneficial, as their children can become friends with the other neighborhood kids and get plugged into the local schools. When the time comes to officially purchase the home, nothing changes as far as the perception of your kids or the neighbors go.
- Work With Professionals: Rent to own isn’t just a bunch of random people just trying to make a quick buck with no regard for your well being. There are professional rent to own companies that will ‘pre screen’ buyers and make sure that they are a fit for the home they wish to buy. Working with a professional Rent To Own company actually increases your odds of success with completing the purchase/sale of the home. They will work with you to forecast how long it will take to save up enough of a down payment, how long it will take to get credit to a mortgageable level, and some even offer credit coaching to guide you through the entire process.
With check ups every 90 days, most Rent To Own projects only require 8-12 visits until successful or completion. By regularly meeting with a professional team it keeps everyone on track and on time for the purchase. We are able to know with a high degree of certainty 9 months before the purchase that things should go through according to plan.
So now that we’ve covered some of the benefits of a Rent To Own project, let’s cover some of the common concerns or downsides to this home buying process. First of all you want to watch out for the “Cons” out there! Unfortunately, as this is a newer way to step into homeownership, it’s not as regulated. That means there are some people out there who do not have your best interest at heart. It’s not uncommon to see stories in the news about couples being scammed by Rent To Own – however, the problem isn’t with Rent To Own itself!
As you saw above, it’s important to only work with a professional who wants the transaction to be successful. A successful rent to own means that In the end:
- the seller will get the rent they are expecting, and the price they agreed to.
- The buyer will get to live in the home, while getting ready to buy.
Once all parties are ready, the rent to own professional can take care of the rest. Purchase contracts are signed, and the whole process is done with a lawyer. This avoids unnecessary realtor fees, because all the purchase details are in the option to purchase agreement.
You could also be conned into an arrangement you didn’t need. For example, some people just don’t know what they don’t know. They think that Rent To Own is the only way they will ever be able to become homeowners. This assumption can be totally false – and this way of purchasing a home is only one of many ways to buy a home. So if you feel like you’re being pressured or something doesn’t jive well with your ‘gut’, then chances are you’ve got some more due diligence to do.
Another negative aspect of Rent To Own which is similar to avoiding con-artists is that the home seller didn’t use a professional, or you are not using one. I don’t want it to seem like I’m just rehashing the advice from earlier, however I want to stress that a true professional will want the deal to work out. When it works out, everybody wins! It’s impossible to build long term success as a professional if the word on the street is you screw everyone over.
One of the ways I encourage people to determine if their Rent To Own provider is a ‘pro’ is by asking them about their pre-approval process. An ethical Rent To Own operator can forecast how long the rental term will be based on the application process, how long it will take for the tenant-buyer to become the future homeowner, and even if it’s the best option for you to take in your journey towards homeownership. They will also help you understand how to budget and price to determine how much home a future home buyer can get a mortgage for. When you do not use an experienced professional you are the one who risks being put into a home that you could never actually buy. This is a shame, as a successful outcome is impossible.
Another downside of a poorly structured Rent To Own deal is the potential of not being able to buy the home. When you’re set up in an impossible project, you as the tenant-buyer risk losing your hard earned deposit that you have worked towards building over the time of your contract. When a rent to own arrangement fails it’s the seller who keeps the buyer’s deposit. Beware of certain sellers who offer rent to own as a way to buy their home, and remember, you can bring a local company to go over the agreements details.
Another FAIL is when rent to own’s are set up without agreements! Yes, this happens all the time – and no matter how good someone says their ‘word’ is, you are putting yourself in a bad position by not having the the right (or any) paperwork in place. These agreements work to protect both the buyer and seller in case there is a dispute – agreements are not designed just so one party succeeds and the other takes all the risk.
In the agreements, the two most common ‘must include’ are a rental lease and an option to purchase. Most deals have a lease, but many fail to include the option to purchase. That last part of the agreement will say how much is being added to the deposit each month so it can build to a full deposit – it shows on paper the strategy being put towards successfully being able to purchase a home. Also, the purchase price is agreed upon from the start – NOT by getting an appraisal at the end of the deal! Without a locked in price it’s impossible to know how much needs to be saved for a proper down payment.
Rent to own is simply an another way to buy and sell a home. In some situations it can be unnecessary, and others it’s the perfect solution to homeownership. Find out if you qualify, for how much, and how long it will take by getting pre screened before signing any contracts. When done properly, everyone wins.
About the Author: Jon Simcoe is the leading Rent To Own professional in Canada. Having setup over 100 rent to own deals, he’s found a way to help hard working Canadians realize their dream of homeownership when the banks say “No”. With a success rate of 97% (in an industry where the average is 50%), Jon’s mission is to help make Rent To Own a win for all parties involved. You can learn more about Jon at his website renttoownstrategy.com