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Buying a Rent-To-Own Home:
What You Need To Know
Part 2: The Benefits
Buying your house through a rent to own agreement has a lot of tangible benefits for you that traditional loans don’t.
Some of the most obvious benefits to you are:
- You have the advantage of "trying out" the property before actually making a commitment to buy.
- No real estate commissions to be paid.
- No need to jump through hoops to obtain financing.
- Renting to own is easier than buying from a traditional lender.
As a buyer, you reap the benefits from renting to own by avoiding large outlays of out-of-pocket cash up front that a more traditional approach to home buying employs.
For example, let's take a look at the low down payment needed for a rent to own agreement. The initial cost to move into most homes could be as low as $1,000 and can fluctuate depending on a few different factors including the value of the home you select. What does this mean?
It means that you might need as little as $2,000-$5,000 or so in order to move into a $100,000 house. Obviously each situation is different, and if you have more available to put down, it’s in your best interest to do so.
This is a real benefit to you because whatever amount you wind up putting down on your house will be credited towards the purchase price when you decide to buy. Then, you make the agreed-upon monthly payments, just like you would when renting, but instead of throwing money away, in many cases part of your payment may be applied towards the purchase price when you decide to buy.
How long does the lease-option agreement last? That can vary. In most cases, you’ll sign a contract to purchase or walk away from the deal within one to five years, though sometimes you might able to get as short as six-month terms or anything in between. Therefore, you as a buyer should be able to find just about anything to suit your individual needs without much trouble at all.
You also don't have to worry about many of the expenses associated with property ownership, at least not right away. If something minor goes wrong with the house, you can handle it. But, say something major goes wrong with the furnace or the plumbing. We won’t leave you holding the bag because almost anything over about $1,000 will be covered.
The same thing goes for almost any other major repair that might come up. This gives you the benefits of home ownership without having to deal with a lot of the headaches that can come from actual home ownership.
The key to rent to own buying is control.
Okay, what exactly does that mean? Again, this type of option means just that: an option, not an obligation to buy. You, the buyer, don't ever have to take over title ownership of a property if you don't want it.
However, when taking advantage of renting to own, since the purchase price is agreed upon when you move in, in some cases you can take advantage of the increase in value of the house while you are "holding" that property.
Another benefit to this arrangement is you can sometimes get a lower monthly payment than if you financed through a bank. Like I mentioned previously, part of your payment may be applied toward the future purchase price of the home.
Earning equity fast is another benefit of a lease-option purchase. By renting a house that offers you the option to purchase it at any time or at the end of the agreement, you earn equity without having to worry about a huge mortgage.
For example, if you purchase a home for $100K using a lease-option agreement, and that property increases in value roughly 5 percent every year, that's $5K profit over your purchase price every year. At the end of 5 years, that piece of property could be worth $125K. In as little as 5 years, you can earn $25K in equity on that home. That's not chump change.
To further increase your equity, you might choose to make some improvements to your house. For instance, if you were to make an improvement that increases your home’s value, you get the benefit by improving your equity position.
These are just a few of the benefits of buying on a rent-to-own basis. Be sure to watch your e-mail tomorrow because we'll send you Part 3 that covers some additional benefits.
We look forward to making your dreams of homeownership come true!
Sincerely,
John Smith
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