Do Sellers Make Money From Rent to Own?
June 9, 2018 by Marty Orefice | Rent to Own, Selling
There are plenty of reasons why someone would want to rent to own their home. Usually, they all boil down to money.
Do Sellers Make Money From Rent to Own?
Sellers do earn money from renting to own their homes. Essentially, the seller turns into a landlord throughout the rent to own lease term. As such, the seller is entitled to keep your monthly rent payment.
Mind you, you may work out other types of rent credit deals that allow you to credit part of your rent back to your purchase of the home. However, the seller always earns at least a percentage of the rent.
It makes perfect sense that your seller is earning more money renting to own their property to you than they would flat out selling it traditionally. Otherwise, sellers would not have a good reason to trust you with their property as opposed to someone who is ready to purchase right away. Money in the bank is a lot better than money in the future…unless you’ll have a lot more money in the bank as a result of your wait.
What Your Seller Doesn’t Profit From
When buyers succeed at buying the home, sellers don’t make any money off of your option fee. Your option fee is like a deposit. The seller holds onto it until the end of your lease term. You get it back when you purchase the home and you can either apply it to the cost of the home or use it to pay for part of your down payment.
Nonetheless, there’s a catch. Your option fee is there for security. It guarantees you the option to purchase the property for the extent of your lease term. However, like all deposits, there are circumstances when you don’t get them back. For option fees, you do not get your money back when you choose not to buy the home you lease-optioned. In that case, the seller gets to keep the option fee as a profit, but that is not the ideal rent to own situation.
Rent credits work the same way. They intention is not for the seller to pocket any rent credit's you've accumulated; the goal is for you to own your own home. Rent credits are an incentive for you to purchase the property, but should you not, the seller gets to keep it as profit.
How Much Should The Seller Earn from Rent to Own
When you complete your rent to own deal by purchasing the home, you have capped the amount of money the seller can make on this deal at the value you have paid in rent money.
Your average monthly payment should not cost more expensive than it would to rent any other property. Rent to own isn’t supposed to be more expensive than any other route to home ownership. In fact, lease-options often cost less than other paths to home ownership when they are successful.
Your seller should charge you fair market rent value for the property you are living in. If your seller isn’t charging you fair market value, you should move on to another property just like you would when looking for any other type of rental.
