How Does a Rent to Own House Program Work

April 27, 2018 by Marty Orefice | Real Estate, Rent to Own

Rent to own programs work differently because they're run by companies.
There are two different types of rent to own. You’re either working with a person or with a company.

Most of the content on this site offers advice for working with a person renting to own a property.

A person who is offering their property as a lease-option typically does so because he or she is having difficulty selling their home at their desired price point, the market is slow or maybe the person has the flexibility to wait to profit from the sale and wants to earn a bit of rent money.

This is the traditional type of rent to own. To learn more about this type of renting to own, check out our rent to own: how it works guide.

How Does a Rent to Own House Program Work

When you rent to own from a company, you’re participating in a rent to own house program.

In a rent to own house program, a rent to own home companies own the property you’re interested in purchasing. You pay an option fee to the company and then rent the home like you would any rental property. When you have your finances together, you have the first option to purchase that home from the company.

Your option fee secures you that first choice, but it only lasts for the duration of your lease term, after which, the company keeps your rent and option fee and can sell to someone else.

At the beginning of the lease term, you and the company will determine what price you’re going to purchase the home for.

Some companies will buy the home you’re interested for you and, then, rent it back to you until you’re ready for purchase. Other companies have a portfolio of rent to own properties for you to choose from.

The most convenient option is for you to choose the home you’re interested in and have the company purchase it, but this type of flexibility is usually more expensive for the buyer than choosing from the portfolio.

The company may have purchased homes in the portfolio for other clients who, ultimately, could not complete their rent to own deal. Or the company may have purchased them at extremely low prices. That gives the company a greater opportunity to offer you a good deal.

When the company has to purchase the exact home you’re interested in, they’re locked in at the price of the home and cannot get as good of a deal.

They can profit from yearly rent increases and inflated prices, but mainly they profit the same way that a person would – through your rent payments.

What to Be Careful About

Typically, when you run into rent to own scams, it’s when you’re dealing with a company. Some companies are in the business of purchasing run-down properties and offering them for rent to own. The real structural issues aren’t apparent to the buyer until after they’ve already paid the option fee and made the commitment to live there for a set lease term.

These buyers typically get stuck with making the necessary repairs and bringing the property up to code, which can be costly.

However, this issue is relatively easy to avoid by bringing an inspector to view the property before signing a contract. The inspector can confirm that the structure, plumbing, etc. of the property is intact.

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 RentToOwnLabs.com to provide the #1 resource where people can find information about all things rent to own.

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