Is Rent to Own Safe?

April 1, 2017 by Marty Orefice | Contracts, Real Estate, Rent to Own

Rent to own is a safe investment for home buyers.
Like anything you do, rent to own has risks. However, if you know the risks, they’re pretty easy to avoid. By reading the contract, making realistic choices and choosing a home that you really like, rent to own can be a safe and wise choice for you.

Reading the Contract

In a world filled with frivolous lawsuits, sneaky con-artists and greedy people, signing your name to a document can be frightening. Yet, it’s easy to hit the “I agree to the terms and conditions” button online. In BOTH cases, it’s important to read what you’re agreeing to before you agree to a contract. The same is true for any rent to own agreement. Reading the contract is essential to making a safe choice.

It would be difficult for a landlord to pull the wool over your eyes if you’ve read through and understand the entire contract. It would be even more difficult for the landlord if you had a lawyer’s help.

Be clear on the following conditions:

Where are your premium payments and option payment being saved?

The safest place for these payments to be saved is in an escrow account so that you know the money will be there when it comes time to purchase the home. It also helps keep track of whether you’re making payments on time. One of the easiest ways for a rent to own deal to become unsafe is if you miss a payment, which could nullify your contract and the landlord’s obligation to sell. It’s safest to have proof of your investment.

When is the soonest you can purchase a home you’re renting to own?

If you save up enough money to purchase the home before the lease is up can you? Some owners prefer to earn rent money from you for the full length of the lease. However, if you feel you might qualify to purchase the home sooner, you definitely can. Save yourself some money and close when you can afford to. Make sure that your contract says you can when you sign to be certain!

What constitutes a broken lease with option to buy?

Are there actions that you or the seller may take that would break the rent to own contract? What would the owner need to do for you to get your premium payments back? What would you need to have done for the seller to keep your premium payments? The only way to guarantee you have certain safety nets is to put them into your lease.

When can the landlord sell the property you have been renting to own to someone else?

At the end of the lease, you have the first option to purchase the home. At what point does the landlord have the right to look for another buyer? Typically, it is after your lease is over, as the contract is for you to purchase the home before the lease ends. There might be an added grace period in your contract or you and the seller can agree to extend the lease in a new contract.

Picking a Home

One of the biggest risks in renting to own is losing the money you’ve spent on premium payments and your option fee. You lose this money if you ultimately decide not to purchase the home.

When you decide to rent to own a home, it’s important to be sure that you actually want to purchase it. Although changing your mind is normal, changing your mind on a rent to own home costs you quite a bit of money. It is important to treat your rent to own decision the same way you would the decision to directly purchase the home. Make sure that you would be happy living in this home and location for a considerable amount of time.

Being Realistic

It is also possible that you want to purchase the home, but don’t have the credit score to qualify for a mortgage when it comes time to purchase the home. Your best option is to meet with a lender to figure out what kind of credit score and what size deposit you will need to be able to purchase the home.

Will the money you’ve saved with premium payments and the option fee be enough? Will renting to own give you enough time to lower your credit utilization, increase the age of your credit history and get rid of derogatory marks?

While rent to own is a great way to work toward owning a home, be realistic about what home you purchase. If the deposit size and credit score the lender tells you is unrealistic, you may need to look for a smaller property or wait a bit longer before you begin your home buying journey.

While it doesn’t make sense to throw away money renting a property when you could be working towards owning a home, it makes less sense to lose the money you’ve saved renting to own because you started too soon.

Is Rent to Own Legit?

Rent to own is a legitimate way to own a home. Especially if your struggling to get a home because of poor credit. It gets a bad reputation because of scammers, but be careful with it and the process can really help you.

D75_2469 by Stephen Harris is licensed under CC BY-ND.

Marty Orefice

About The Author

Marty Orefice

Martin Orefice is a real estate investor who has been in the industry for over a decade. He has experience with rent to own deals from all sides—as a buyer, seller and investor. He created to provide the #1 resource where people can find information about all things rent to own.

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