Weighing the Rent-to-Own Option: A Second Look

by Jared Diamond

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The current economic scene has altered the dreams of many people. Housing prices have gone down but there still is a problem of people not having sufficient income to afford a home.

On the other side, house owners are discovering that the value of their property in the open market is declining and may continue to decline in the years to come. It can be argued that these are the worst of times, yet a smart person selecting the right options can make this the best of times. The real estate world is not one of few possibilities.

There any number of alternatives an individual may consider in getting the home desired. The rent to own home option is a very viable possibility.

This could definitely be a win-win proposition. The bare bones of the deal requires that the renter pays a monthly amount of money, which includes both rent and a determined sum that would go to a down payment.

The renter is permitted an option to buy after having paid a price for the right. Later on the lease can either be renewed or the option exercised, depending on the terms of the lease. The arrangement means that the renter has a place to live plus money has been paid towards a down payment; the landlord has a willing buyer in what may be a depressed market.

Selling price of the house is fixed at the start of the lease, and may be more or less than the going rate depending on conditions in the market. Both sides win something.

The appeal of the deal is darn near irresistible. The housing market has been in a state of near confusion with houses at lower prices, but buyers not able to afford the payment. The economy does hold a precaution for anyone considering rent-to-own. For the renter, it can happen that the landlord is no longer able to pay the mortgage and has to foreclose. This can happen at a time when the writer does not have the resources to exercise his or her option.

Conversely the landlord is able to fix a price on the house which will sold later to a willing buyer, but the sale may come a time when the housing market has revived and prices have gone up again. The terms and conditions of the lease can be a bitter battleground. Both sides want to have a fair deal but sometimes it may appear one is taking advantage of the other.

Renters want to make certain that even though part of the monthly payment goes towards buying the house, they still want the landlord to pay for all of the maintenance. Landlords want to be certain that if a payment is missed there is a penalty incurred, and they are not obliged to tolerate a renter who abuses the property. Both sides need to hash out the quid pro quos of the arrangement; each understanding that one can only get just so much of a good deal.

The cautionary notes and possible problems should not make anyone shy away from the rent- to-own option. The beauty of it is that is so straightforward: rent plus a little bit towards the down with an option to buy at a set price that might not go down, but won’t go up either. People can also consider other options but these can be very complicated and exposed to interest rate fluctuations or price instability. The renter and the landlord stand to gain a little bit more than they concede in a rent to own lease.

A well drafted lease guarantees that neither side is put at a disadvantage and the original win-win situation is maintained.

Learn how to turn your rent money into a new home no matter who you are with Rent to Own: Use Your Rent Money to Get Started Owning Real Estate by Robert Irwin.

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