When most people envision buying or selling a house, they think of what is a fairly simple transaction – a buyer offers to pay a certain amount of money, a seller agrees to the purchase price, money is exchanged for keys, and everyone parts ways happy. While this is the “traditional” way to do things, it isn’t the only option. Some homeowners offer buyers a “rent to own” deal, while other homeowners may offer to sell a property on a land contract or through owner financing. In this series, I will explaining the details of these types of transactions, and will discuss the advantages and disadvantages of such a deal for both a buyer and a property owner.
Dayton buyers can pay rent on a home with the option to purchase it later
In a rent to own contract, a potential buyer enters into a rental contract with a homeowner, with an option to buy the property at a later date. Generally there is an up front, one time cost – akin to a downpayment – that is nonrefundable. As the potential buyer makes rental payments, they ‘pay down’ the purchase price of the home. The details of the agreement will be in the contract – this will specify who is responsible for the cost of repairs on the home, the agreed upon price of the property, the cost of the monthly payments, etc.
It is very important to understand the difference between a rent to own lease option, and a land contract. While the terms are often used interchangeably, in a rent to own situation, the buyer is not under an obligation to purchase the home. In a land contract, the buyer is agreeing to buy the home from the beginning of the transaction, and the seller is agreeing to provide the financing. In this type of transaction, it is important for both the buyer and the seller to have their attorney review the contents of the contract.
Rent to own options are often attractive to Dayton buyers who are unable to qualify for traditional financing, or who wish to work on their credit. It also gives buyers the opportunity to ‘test drive’ a house or neighborhood before committing. For sellers, they are able to earn interest on a home, may be able to ultimately sell their house for a higher price, and can have a steady stream of income coming in over time. However, rent to own transactions are not as simple as they initially appear, and carry heavy risks for both buyers and sellers.
Rent to own contracts are complicated and may have significant disadvantages if Dayton buyers and homeowners do not enter into them carefully
Now that I have explained what a rent to own contract is, I will be spending the remainder of this series providing more details for what a homeowner or a buyer needs to know, before committing themselves to such a contract. Remaining topics that I will cover include:
- The pitfalls of a rent to own agreement that buyers should be aware of prior to signing a contract
- Issues that could ultimately cost a seller time and money in the long run
- Why a buyer or seller should have a real estate attorney draft or review a rent to own lease contract or a land contract
- Examining whether a rent to own property is a savvy choice for a buyer who is worried about their credit
I am writing this series because I regularly receive calls from people who are interested in entering into a Rent to Own contract. While there may be instances in which a rent to own transaction makes sense for both parties involved, a poorly defined contract can leave both a buyer and a seller vulnerable to financial losses and legal headaches, I urge both buyers and sellers to educate themselves about the potential issues with this type of negotiation before entering into a contract that could put your financial investment at risk.
As a Dayton area Realtor, I am happy to sit down with potential buyers and sellers alike, who wish to compare the benefits of a rent to own option with a more traditional real estate sale. I also service the areas of Beavercreek, Centerville, Clayton, Englewood, Oakwood, Fairborn, Harrison Township, Huber Heights, Kettering, Miami Township, Miamisburg, Riverside, Springboro, Trotwood, Vandalia, Washington Township, West Carrollton, and Xenia.