Why Rent To Own...

Later, see the "How to Rent to Own" article, here.

Benefits and Drawbacks of Lease Options
So why would you want to rent to own a house?  Or, bigger, why would a seller rent to own a house to YOU?

Benefits to Buyers
Control:  When you lease option a property (rent-to-own) you gain control of the property by having the exclusive right to purchase a house at a pre-agreed locked-in optional price.  You have the power to purchase the house, say, if the house appreciates at your pre-agreed price.

Improve Credit:  The most common situation we see is buyers wanting to improve their credit to get better financing before they buy, but they want to move into a house today.  A lease option can be the perfect solution for this.

Try before you buy: Often, people don't know where their job will take them from year to year.  Using a lease option you can "lock in" a house price without buying it.  If you decide against buying, you just move out.

Investment:  Lease options can be very profitable.  A book can be written on this topic of investing (and many have been written).  The idea is to get a lease option on a house and then sub-lease with a sub-option to someone else.  You make money on the difference.  Email us if you want more information on this.

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Drawbacks To Buyers
In our opinion there aren't a lot of drawbacks if you are the potential buyer in a lease option.  You don't own the house until you exercise your option to purchase it.  Until then you are leasing the house.  So, if you want to do major improvements before you buy, your seller/landlord may have some valid resistance.

What we sometimes see is the buyer putting non-refundable option consideration down (as they should) and then trying to get it back when they decide not to buy the house.  The buyer loses this battle.  The whole idea of a lease option is leasing and purchasing the option to buy the house later. 

This is option is valuable.   It is paid for in cash upfront as option consideration.  This locks the seller into NOT SELLING until you decide whether you want to buy the house.  If a hot market starts up, they can't sell at a higher price until you decide whether to exercise your option.  You purchase the option to decide later. 

As with any deal you want to make sure you don't overpay.  A traditional amount to pay is 3%.  This can be higher or lower depending on how good of a deal you are getting on the price.  Be sure to get comps on the house you are considering and remember that the price you pay will be in future dollars, not the price today.

Compare a lease option to purchasing a house with traditional financing.  Say in a year you don't want the house.  If you lease option, you lose 3%.  If you purchase outright, you lose closing costs which can be in the 3% range, plus you have to put the house on the market for months (while paying the mortgage still) and pay a real estate broker a fee of 6%.

Benefits To Sellers
When an investor purchases the house from a seller for you to rent to own, the seller is happy to sell just like they'd sell to anyone else. 

If you are trying to lease option directly from a seller (without an agent or investor), there are still benefits you can offer the seller/landlord: 

The biggest benefit to offer the seller is that part or all of their mortgage will be paid!  Most of the sellers we've worked with directly to to lease option have been sellers who had moved into a new house already and were making DOUBLE PAYMENTS.  So, they were excited to rent their house out to a tenant/buyer for a while.

Another benefit to offer a seller is that the future price of the house will usually be higher (depending on the house and the economy) and the optional price you offer to pay in a year or two would be higher than most people would pay for the same house TODAY.

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Drawbacks To Sellers
When an investor purchases the house from a seller for you to rent to own, the seller is happy to sell just like they'd sell to anyone else.  The investor then takes on the risks of doing the lease option.

However, if you are thinking of selling your own house via lease option or rent to own here are a few things to consider.  First, get an attorney to draft your agreements.

To sell your house as a rent to own you are going to have to screen your applicants.  It happens all to often that prescreening wasn't done properly and the seller ends up with tenant/buyers who tear the house to shreds.  Or worse, they stop paying rent, they don't care anymore about buying the house, and they won't move out...eviction.

If you sell your house as a rent-to-own you are giving the tenant/buyers the OPTION to buy the house in a year or so.  They don't have to buy it.  If they do, great, if they don't, you have tenants who may be professional tenants.  You know, the kind who know the system and try to use it to their advantage.

It is a big risk and responsibility to sell your house via lease option.  This is why an option consideration is required upfront of 3% or more.  When it all works out and you have good tenants rent to own or lease options are a GREAT way to get people into a house who wouldn't otherwise be able to.

Learn more > Email us at owner2b@yahoo.com
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