While we usually think about rent-to-own agreements as something that only benefits aspiring home buyers, the same is true for landlords or those trying to sell their homes. Because housing costs are on the rise in many parts of the United States, renting-to-own is becoming a more common option to achieve the dream of buying a home. It’s also an effective way for the landlord or owner to transition their property out of their control.
In this article, we’ll discuss how a rent-to-own or lease-to-own agreement works, as well as why it benefits landlords and property owners who want to sell their home. Sellers who are struggling to move their home off the market quickly might be interested in this option.
What is Rent-to-Own?
The name itself is pretty self-explanatory. When you rent-to-own your property, you lease out your home to a tenant for a certain period of time with an option to buy. In most cases, the renter will pay an additional fee called the “option fee” which can be between 2-7% of the purchase price. This fee is to have the option to buy the home in the future.
Often, a portion of the rent paid throughout the lease term is applied to the purchase price. For instance, if the tenant pays $1,500 a month for rent within a 3 year period, that’s $54,000 total over the course of those 3 years. If 25% of that rent is credited towards the purchase, that will result in $13,500 to put towards the purchase price.
As you can imagine, this makes it home ownership much more attainable to those who might not have been able to afford a large downpayment to begin with. Now, let’s discuss how this rent-to-own agreement benefits sellers.
Benefit 1. Higher Sales Price
First, because you’ll likely charge an “option fee” on top of the rent, as well as keep a percentage of the rent, this is a great way to increase the sales price. While you might not be able to pocket that money as quickly if you’re willing to wait you can land a higher sales price even in a soft market. Because the financing terms are much more flexible than a regular rental contract, you can often get a higher rent payment as well.
Benefit 2. Minimum Risk
There’s also little to no risk when choosing a rent-to-own agreement to sell your home. Because you can accept a non-refundable deposit if the buyer decides not to purchase the property, you don’t come out empty handed if everything goes south.
Benefit 3. Quality Tenants
We’ve all heard about the horrors of nightmare tenants who leave your home in disrepair. This isn’t likely to be the case with most rent-to-own agreements. Most renters don’t intend to stay in the home long-term, so they have very little motivation to take great care of the property.
With rent-to-own tenants, they’re hoping to purchase this property someday. It’s this vested interest that usually leads to better maintenance. In many agreements, the tenant is even responsible for repairs.
Benefit 4. Larger Target Market
Because you’re targeting both buyers and renters, you have a larger group of people to market your home to. You also don’t need to use a real estate agent if you’re already comfortable handling the rental process on your own. This means you have a greater potential to sell your home in the long-term.
Benefit 5. Less Stressful
Finally, this is simply a less stressful process. You don’t have to rush through a home sale, and you can pocket a lot more money along the way. Knowing you’re taking full advantage of the value of your home is a big relief, and you can move your property faster even in a slow market.
Should You Use a Rent-to-Own Agreement to Sell Your Home?
While it might not be right if you plan to sell your home quickly, using a rent-to-own agreement to sell your home can be a smart idea. You’ll likely gain more money on your investment, you’ll have time to transition into your new property if you currently live in your home, and you don’t have to worry about the wrong tenants in your property.
However, if you do choose this route to sell your home, make sure you take the proper measures to protect yourself and your property. You’ll want to negotiate all of the terms of the lease and the future purchase in your agreement so you have all of your bases covered. Beyond that, it’s just a matter of waiting until your home is ready to sell to your new tenants.