You are in the process of selling or your house, or at least thinking of selling a house. You have heard or came across the idea of “Rent-To-Own.” You may own a home that you are currently renting, or perhaps it’s your personal residence when someone asked if you would consider renting to own the home. So, What exactly is Rent-To-Own, and what all does it entail?
What Is Rent To Own?
Rent-To-Own is what is exactly what it sounds like! A person rents a home for a certain amount of time, and before the lease is up, they have the option to buy the home. These agreements typically have two parts: a standard lease agreement and an option to buy. These are not very common, but can be option if you want to put more money in your pocket as the seller. In a typical rent-to-own transaction, the purchaser will provide a down payment. This down payment is set according to the agreement (or contract) that is created when the transaction takes place. A 10% down payment is common, but is negotiable. This does obviously extend the home buying process, but it can be a great option if you are not in a quick need to cash out on the house. Lets explore the two common ways of renting to own.
Lease Purchase
A lease purchase contract usually requires the person renting the home to buy it, whether they can actually afford it or not. Again, it is critical to have an established contract written by a qualified attorney so that you as the seller, and the buyer understand obligations. These are not as common as a lease option.
Lease Option
A lease option is identical to that of a lease purchase, except this type of agreement just gives your tenant that “option” to buy the property, and not require them to. Once the lease is expired, the tenant has the option to buy.
What Are The Pros of Rent-To-Own For The Seller
Money Up Front
When you sell your house rent-to-own, you usually receive money upfront. It is common to require a down payment of around 10%. If you are selling a house for $200,000, that would be $20,000 upfront. Depending on your contract, this would normally be applied to the purchase price at the end of the lease agreement. In most contracts, this fee is non-refundable.
Higher Rent
Rent is typically higher in a rent-to-own situation. Since you are acting as the buyer’s bank, you can charge a premium for this service. If at the end of the lease, your tenant elects not to purchase the home, you have still made a premium from the rent!
More Money In The End
In the end, you have the opportunity to make more money selling your house this way. Of course, this comes at a gamble, we will explore the cons of renting to own next.
What Are The Cons of Rent-To-Own For The Seller
Maintenance
It is not uncommon for you to still be responsible for maintenance of the home during the lease period of the contract. It’s still your house after all! Of course, this is dependent on how you structure the contract.
Buyers Usually Don’t Qualify For A Mortgage
Most buyers elect this option because they have low cash reserves, or they don’t qualify for a mortgage. This is why you charge a premium upfront, or in higher rent. If selling to an investor, this con doesn’t apply. Most investors have significant cash or excellent credit, they are just wanting to utilize this option to give you more money for the home! IF you are considering selling your home to an investor using this option, make sure you are dealing with a reputable investor. You can do this buy looking at their website and looking the company up in their state’s database. We also wrote an article on how to find a legitimate we buy houses company.
Why Do Buyers Want To Do This?
There are a few reasons a buyer may elect to try the Rent-To-Own process. One, is the buyer may not be financially ready to go through the typical home-buying process. The buyer may have bad credit and just needs more time to improve their credit. Renting-To-Own will also give a buyer more time to save for a larger down payment. Rent-To-Own is a way that will help the mortgage process of buying a new property be more accessible to some, especially those that may have legitimate credit concerns that currently disqualify them from a standard mortgage loan.
Final Thoughts On Rent-To-Own
This can be a great way for you to sell your home in Knoxville, and get more money in the end. In order to do that, you need to consult an attorney in order for them to draft a contract that clearly dictates the responsibilities of both parties. This contract will outline the duties, time periods, and everything else. Please do not skip this step! It is the only way to protect you as the seller, as well as the buyer!
*These articles are not a substitute for legal advice. All real estate transactions should be reviewed by an attorney that in knowledgeable about the laws and rules of your state.
