{"id":13541,"date":"2020-07-01T16:05:33","date_gmt":"2020-07-01T23:05:33","guid":{"rendered":"https:\/\/www.rentecdirect.com\/blog\/?p=13541"},"modified":"2020-07-01T16:05:33","modified_gmt":"2020-07-01T23:05:33","slug":"rent-to-own-vs-for-sale-by-owner","status":"publish","type":"post","link":"https:\/\/www.rentecdirect.com\/blog\/rent-to-own-vs-for-sale-by-owner\/","title":{"rendered":"Rent to Own vs For Sale by Owner"},"content":{"rendered":"

\"Rent
\nBeyond the traditional mortgage, rent to own homes and homes for sale by owner are two unique points of entry to homeownership. Sellers and investors may also find it suits their needs to enter into a rent to own contract or sell a home without a realtor involved.\u00a0<\/span><\/p>\n

This article will highlight the pros and cons of entering into a rent to own agreement from both the seller and buyer perspective.\u00a0<\/span><\/p>\n

Rent to Own Homes<\/span><\/h2>\n

The two types of rent-to-own contracts are a lease-purchase agreement and a lease option agreement. In both rent to own scenarios, the occupant is a renter and therefore a tenant but takes on more of ownership responsibilities and costs.\u00a0<\/span><\/p>\n

\"How

A rent-to-own home starts with a seller who is also the landlord and a buyer as the tenant; both bound by either a lease purchase or a lease option agreement.<\/p><\/div>\n

How a Rent to Own Lease Works<\/span><\/h2>\n

A contract is formed between a seller (current homeowner) and a tenant (potential or future homeowner) wherein a portion of the rent collected is credited towards the future purchase of the property. That amount may be credited either towards the down payment or towards the purchase price depending on the contract.\u00a0<\/span><\/p>\n

At the end of the lease term, which is typically two to three years (24 to 36 months), the remaining balance of the home is due.<\/span><\/p>\n

Unlike a typical rental where the owner or property manager takes care of the maintenance, taxes, and insurance, the renter is typically responsible for those costs.\u00a0\u00a0<\/span><\/p>\n

Lease Option<\/span><\/h2>\n

A lease option is also known as a lease option to buy<\/a> or a lease-purchase option. When you go into a lease option for a rent to own home you are in essence paying a fee for the opportunity to purchase the home at the end of the lease term. It gives the potential homeowner a way to test-drive the home with a back door exit to the obligation to purchase it.\u00a0<\/span><\/p>\n

The renter will pay an option fee for the exclusive rights to purchase the home at the end of the lease term. In most cases, depending on the wording of the contract, the potential buyer (aka the tenant) may have the right to sell that option to someone else.\u00a0<\/span><\/p>\n

If the renter does not choose to exercise the option to purchase, they forfeit the option fee as it is not refundable. This upfront fee is also known as option money or option consideration and can range from 1-5% of the purchase price.\u00a0<\/span><\/p>\n

Lease-Purchase<\/span><\/h2>\n

Unlike the lease option to buy, a lease-purchase agreement is a binding sales agreement that the tenant will pay the balance of the home purchase price due at the end of the lease unless there is a clause for extension.\u00a0<\/span><\/p>\n

If the tenant is late on a payment, skips a payment, or fails to fulfill any requirements of the lease-purchase agreement, they would be in default and have breached the contract. The owner then may move forward with an eviction and keep all money received towards the purchase price, including the lease fee.<\/span><\/p>\n

 <\/p>\n

\"Lease

Buyer and seller enter into a lease agreement for rent to own homes but do not for a for sale by owner (FSBO) contract.<\/p><\/div>\n

Rent to Own for Buyers<\/span><\/h2>\n

Benefits<\/strong><\/span><\/p>\n