How Does Rent to Own Work?

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Many people know why rent to own homes are so advantageous, but few know how rent to own works. Here’s a brief explanation to help guide you through the process.

The Period of the Contract.

One of the first things a buyer and seller negotiate is the period of the contract, which is how long the buyer will lease (rent) the house before making a decision to purchase it. Most contracts have a period between one and three years. Oftentimes, prospective buyers will set the period of their contracts higher to give them enough time to rebuild their credit or so that they have enough time to save up for a down payment. Some, on the other hand, will set the period shorter, because they only want to get a feel for the house’s neighborhood.

The Payments.

During the period of the contract, lessees pay the home owner one fee, which is split into two. First, there’s the rent. Homeowners pocket this part of the payment. The other part, however, goes towards a down payment on the house, which should hopefully be covered by the end of the contract’s period. If the lessees choose not to buy the house in the end, though, the owner keeps the money meant for the down payment.

The Agreed Upon Value.

Property value fluctuations, which makes rent to own situations a little bit tricky. Home owners want to make a profit on their investments, while buyers want to get a great deal. However, neither will know if the property value will increase, decrease, or stay the same in the future. As a result, each must agree on an amount based upon the property’s current value, and the rates of the market. If the property value increases more than anticipated, then the seller has to eat that profit.

There are tons of reasons you should rent to own, but you need to how to rent to own before you do. If you have any questions about rent to own homes work, feel free to ask in the comments.

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