4-Step Rental Property Strategy For Lease to Own Success
May 19, 2016 by Natalie Heller |
Rent to own can be good option for many first time home buyers, but only if you understand how to be a responsible tenant. There are many things to consider when determining if rent to own is a plausible option for you. For instance, will you be able to improve your credit by the time your leasing term ends? Or, do you have a backup option in case your rent to own plans fall through? In this article, we’ll go over a 4-step rental property strategy that may come in handy during the rent to own process.
1. Ask Lots of Questions
Though rent to own is a type of leasing, it still should be treated as seriously as buying a home. This is because renting to own comes with more strict regulations and greater risks than just a normal lease. You should try to gather as much information as possible before you enter into an agreement.
Either before or after the contract is drafted, you have the right to ask any questions regarding the terms and conditions of the agreement. You should be as thorough as possible when going through the details of the contract, to help prevent fraud or scams. It may be helpful to review 6 Key Rent to Own Contract FAQs.
Additionally, it is highly recommended to visit a public records office or perform a background check if you are unsure of the seller’s reputation in the real estate industry. This should be able to tell you if they have engaged in fraud or other illegal schemes. You should also try to retrieve a property history report to check for anything unusual or suspicious that may sway you from buying the house.
2. Weigh Your Decision Carefully
The rent to own lease agreement could have serious consequences if you enter into it hastily. Rent to own sellers tend to be cutthroat when it comes to meeting the terms of the contract, so you should be extremely careful. You should always make sure to measure the Pros and Cons of Rent to Own to decide if the benefits of this leasing option will outweigh the risks you may face.
Rent to own carries a greater amount of responsibility than just normal renting. This is because a lease to purchase agreement pretty much binds the tenant to buying the home. Unlike normal renting, you can’t just back out of the agreement once your lease is over. Otherwise, you would lose the thousands of dollars you paid in option fee as well as all the equity you earned towards the home from rent credit.
3. Improve Your Credit and Save for the Down Payment
The reason why rent to own is becoming more popular is because it is an affordable option for many who need to repair their credit score and save for a down payment. The rent to own leasing term is the ideal time for tenants to get their finances in order before purchasing the home. By repairing your credit score, you have a better chance of qualifying for a mortgage when the lease is over. Take a look at Here’s A Simple Guide to Improving Your Credit Score for several crucial tips that may be useful in this process.
Despite how promising the rent to own option might sound, it is important to be cautious before deciding to commit to it. Many rent to own tenants overestimate how much they can improve their credit score by and end up not being able to secure a mortgage loan. As a result, these tenants lose their option money and rent credits towards the home. To avoid having this happen to you, it’s a good idea to consult a mortgage lender or personal banker to determine if rent to own is a realistic option.
4. Have a Plan B Strategy On Hand
With rent to own, there’s always the possibility of your plan going awry due to many factors. The last thing you want is having nowhere to turn when this happens. Even if you follow every piece of advice in our rent to own guide about How to Mitigate Risk, you still might come across major obstacles. In case this happens, it’s always a good idea to have a plan B on hand; this way, you’ll be able to anticipate possible problems and fix them before they can get worse.
Many tenants chose the popular plan of using an escrow, which keeps your rent credit money out of the hands of the seller until your lease expires. This guarantees that your money is not being used prematurely and will still be available to you once the term ends, as long as you can secure a mortgage. Other backup plans, such as land installments or wraparound financing, are explained in more detail in the Alternative Options section of How Rent to Own Works: A Guide.