Tuesday, November 18, 2014
Rent-to-own homes come with the option to purchase the property once the term of lease is over. Given this setup, monthly rent is paid with additional fees, which add up to become the downpayment. The renter, once the lease is over, can opt to buy the property with a mortgage to pay off its balance. Just the same, the renter can walk away from the property, but without refund of payments made during the term of lease.
Putting up your property as a rent-to-own has its advantages and disadvantages. Consider the following before committing to this arrangement:
Revenue. Selling property is no piece of cake. Often, a house may sit on the market for years. While you pay off its mortgage, you get nothing in return while it sits empty. Putting it up as a rent-to-own will allow for a revenue stream even if the renter opts out of the purchase in the end.
Higher rent. Rent-to-own houses are leased for steeper costs than the standard rented property. As such, you are paid off for the opportunity cost of taking the property off of the market and from other, potential buyers.
Changing market values. As a seller, you won't be able to benefit from your house's rising market value should trends allow for appreciating costs. The contract, which states a fixed sales price to the property, allows for no adjustments during the term of the lease nor afterwards. To buyers, this comes as a boon: they'll be able to buy your property below the market price.
Forfeited purchase. Should the renter decide to forfeit the property, the seller misses out on the chance to receive the property’s full sales price. The seller may also have to deal with repairs following the renter’s use of the home, depending on the contract’s conditions. However, the house is still an asset, and the seller can put it up on the market once again.