Should You Rent-to-Own?

Rent-to-own is becoming more common during the recession as more people find it difficult to get mortgage financing.

Turning your rental house into a house you own is a good idea if the total monthly cost is less than what you pay in rent. Just be sure to add in insurance, property taxes and upkeep of the house.

How do you turn a rental house into one that you can buy? Here are some tips:
With rental vacancy rates rising, some landlords may be looking to lease their rental homes with an option to buy. If you haven't discussed this possibility with your landlord before moving into a rental house, approach them with a rent-to-own option that will help both of you.

Such a lease can make buying the home faster and easier on both parties.

In a market where it's difficult to sell a home, having a tenant in a rent-to-own option makes it a good deal for a landlord who wants to sell.

The lease option allows renters to live in a home they want to buy and then buy it outright within a specified period. The term is negotiable, but is generally from one to three years.

These deals typically require the renter to pay an additional monthly rent premium to "buy down" the price of the home in addition to paying an upfront sum, ranging from 3 percent to 10 percent of the purchase price. Think of it like a down payment.

An additional fee is often required for buying the rental home at a later time, although it can be credited toward the purchase price of the home, much like a traditional down payment. The option fee is rarely refundable and all or some of it can be applied toward the purchase price, depending on the deal you negotiate with your landlord.

And remember, if you get evicted from your rental house, you won't get those extra payments or fees back. You don't have the same rights as a traditional buyer does.

Money spent on renting the home each month doesn't typically go toward equity in the home, although you can try to negotiate that part of the rental costs go toward that.

Once the option to buy is exercised, the buyer pays the agreed-upon price or a price based on fair-market value of the rental home at that time.

Since the buyer isn't obligated to buy the rental home if they can't get mortgage financing, a rent-to-own option is a relatively low risk for the potential buyer.

If the rental home isn't bought by the end of the option period, the option expires, usually along with the lease.

Throughout all this, you may want to hire a lawyer to help negotiate and reach a deal.

Aaron Crowe is a freelance journalist in the San Francisco Bay Area. Reach him at

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