Are there benefits for rent to own?

There are real benefits to a rent-to-own arrangement as the seller, but they come with tradeoffs you need to understand before committing. The biggest advantage is income while you wait. You collect monthly rent that's typically above market rate because part of each payment is credited toward the eventual purchase price. That premium rent gives you better cash flow than a standard rental. You also collect a non-refundable option fee upfront, usually 2 to 5 percent of the sale price, which the buyer pays for the right to purchase at the agreed price within the lease term. If they walk away or can't close, you keep that money. You lock in a sale price today, which can work in your favor or against you depending on what the market does. If prices flatten or dip, you've secured a higher price. If the market takes off, you've capped your upside. Since you're not in a rush, this is worth thinking through carefully. From a tax perspective, you're deferring the capital gains event until the actual sale closes, which could be one to three years down the road depending on the lease term. That gives you time to plan for the tax hit rather than taking it all at once. The tenant-buyer also tends to take better care of the property than a standard renter because they're planning to own it. They treat it like their home, not a rental, which usually means less wear and tear and fewer maintenance headaches. The downside is that the property is tied up for the length of the option period. If a cash buyer shows up tomorrow offering top dollar, you can't sell to them. You're also still the owner during the lease, which means you're responsible for major repairs, property taxes, insurance, and the mortgage. And if the tenant-buyer can't qualify for a mortgage at the end of the term, the deal falls apart and you're starting over, though you keep the option fee and any above-market rent you collected. Have a real estate attorney draft the agreement. Rent-to-own deals have more moving parts than a standard lease or sale, and getting the terms wrong can cost you.

As a seller, rent to own is basically becoming a landlord with the rare chance that the tenant purchases the property. Personally, given the way the market is, I would traditionally sell the property as the additional headaches of becoming a landlord if it is not your purview is not worth it. Keith Jean-Pierre Managing Principal The Dapper Agents Operations In: NY, NJ, FL & CA

Rent-to-own arrangements do offer real benefits in the right circumstances, but they also carry risks that buyers need to understand before signing anything. In Tennessee and across Florida, the primary benefit of a rent-to-own agreement is that it allows you to lock in a purchase price today, build toward a down payment through a portion of your monthly rent, and have time to improve your credit or income before obtaining traditional financing. For buyers who are close to qualifying but not quite there yet, this can be a legitimate bridge strategy. The risks are equally real. If you cannot secure financing by the option expiration date, you typically forfeit any option premium or rent credit you paid and lose the right to purchase. The property may decline in value below the locked price, and you would still be committed to the higher number. Rent-to-own contracts vary enormously in their terms, and many are drafted to favor the seller. Before signing any rent-to-own agreement in Florida or elsewhere, have a real estate attorney review the full document. Confirm what happens to the option fee if you cannot close, how the purchase price was set, and what your specific obligations are at every stage. Kevin Neely & Kaitlynd Robbins | K2 Sells

Yes, rent-to-own gives buyers time to improve credit or save for a down payment while locking in a future purchase price. It can also benefit sellers by providing steady rental income and a committed future buyer. It’s important both sides have a clear contract reviewed by a real estate professional.

In my 18 years real estate experience -- rent to own can get really messy. Make sure you get an attorney involved if you decide to go that route. Also -- get enough nonrefundable down money -- that if the Buyer is unable to get financing at the end of the "rent to own term", your covered for any "remodeling" they did...

I would like to say becareful, I have seen more fraud than any other type, and more legal headaches and disappointments by both renters and owners in the long run. I have been doing this for 20 years and have sold over a quarter billion dollars in real estate, and I can tell you from experience I would stay away from it. To the point that when any party comes and asks me to assist with that, I excuse myself after giving them my 2 cents. Stay away. Hire an attorney if you will do it whether you are the owner or renter to represent you and review all docs.

That is a great question but not a simple answer. There are pros and cons to both the buyer and the seller. I'd be happy to discuss further with you....but not an easy or simply answer.

Hi Darly, There are some benefits to do rent-to owner which include attracting long-term tenants, consistent income, reduced maintenance costs as many rent-to-own agreements will shift some maintenance responsibilities to the tenants, reducing your costs and upkeep in the property. May receive higher purchase price, rent-to-own agreements often set a higher sales prices compared to the current market value, easier sale process when the time comes, in a slow market can attract tenants who may not qualify to buy but aspire to homeownership. The cons the tenants may not purchase the home at the end of the lease, legal and financial complexity as rent-to-own agreements require careful drafting to ensure they are legally sound, property depreciation can also happen if market conditions change or tenant neglects the property decreasing the property value.