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How Rent to Own Properties Work

By Colleen Colkitt

A rent to own agreement is when a buyer chooses to make payments towards purchasing the property in the long run. This type of agreement is made when signing the rental contract and lease purchase agreement for the home. Here, you will be given a price to pay monthly, typically, towards the rent, and then a portion of the rent each month will be put aside by the owner or go towards the house's ultimate price. The monthly installments will come from the tenant's rent, but the specific amount taken will vary from deal to deal, but will have to be agreed upon prior to signing the purchase agreement.

Any money set aside each month from the rent will be used for the down payment on the property. The lease contract does not put the renter under obligation to purchase the house, but the renter must comply with the terms in the lease agreement.

Rent to own deals refer to the certain amount above the rental price of a home in order to ultimately pay less when actually purchasing the home. Typically these rent to own deals include 5-7% of the purchase price in up-front fees. There will also be a set time frame where the renter is able to buy the property. This time varies, but might be anywhere between 12 and 36 months.

Disadvantages

Sometimes these deals may not be best for you. There is a potential for loss of the inflated rent payments due to foreclosure, or financial instability at the end of the lease due to these premium payments. It is important to secure the funds set aside to make sure the landlord does not keep the money dedicated to purchasing the home.

Benefits

The rent to own agreement forces a renter to accumulate good credit by setting aside money each month and save. These deals are also a good way to check out the home and see if it is worth buying instead of just leasing it. Getting a home inspection before a rent to own agreement is in place will protect the renter as well. If you are looking for a home and want a sure way to save for it, rent to own might be right for you, but make sure you will be financially stable so you can successfully purchase the property!

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