It sounds like a dream-come-true scenario: rent a home you love and eventually own it.
But rent-to-own make up only about 5% of the real estate market and is not so easy to come by. Rent-to-own is often an attractive choice for landlords if they haven't been able to find a buyer for their property—and that might mean the property is undesirable for one reason or another.
The house or condo might be in a transitional neighborhood, or in a building that hasn't been updated. The school districts might not have the highest ratings, or maybe you'd have to drive several miles to find a nice restaurant or grocery store.
This all might sound a bit Debbie Downer, but it might all add up to a landlord who's ready to offload a property at an affordable price. And characteristics that are undesirable to some might not be a big deal for you.
Plus, renting to own a home that's not perfect could be an important step in your wealth-building journey. In particular, if have credit issues, or don't have the means to save for a down payment, or have an unconventional job or income, rent-to-own could be a way of getting around traditional mortgage loan requirements. (Read more about how rent-to-own works.)
Here are a few ways to find a rent-to-own property.
Buy the home you're renting
If you love the home where you live and you think your landlord might be willing to sell, you can propose a rent-to-own arrangement.
This might not be viable if the home is in a neighborhood where the market is hot, i.e. home prices are high and sellers are receiving m ultiple competitive offers. But if the market is cooler in the area and homes are staying on the market for a long time, your landlord may welcome the ability to lock in a sale price and have path towards selling.
Seek out a rent-to-own property
Zillow, Realtor.com, Trulia, or any other real estate search website can help you locate a potential rent-to-own situation. Target homes that are "for sale by owner," homes in transitional neighborhoods, or search for homes that have been on the market for a long time.
You can also search for homes where the price has been reduced, which might indicate that the seller is having trouble finding a buyer. Most real estate websites allow you to filter home searches by reduced price, time on the market, property type, and more.
Real estate agents are also great sources of information. They may be able to connect you with a seller interested in rent-to-own. Keep in mind they will likely expect a finder's fee.
Also check out Homefinder or Rent to Own Labs, two websites that specialize in rent-to-own listings. Other services to check out include Divvy Homes, Home Partners of America, and Dream America. They may charge fees, and you'll have less ability to negotiate, but they might be a quicker way into a contract.
Enlist a lawyer's help
There's no one standard contract when it comes to rent-to-own, so it's a good idea to have a lawyer help you draw up a contract and review it carefully before you sign. Who will be responsible for repairs? How long will the lease last? How much will you pay each month, and what portion of that will go towards a down payment?
These are just a few questions that will need to be clearly answered in a rent-to-own contract, and you'll want to make sure that you and the landlord/seller understand the terms.
Most rent-to-own leases last from two to six years, so if the home has some less-than-ideal aspects, think through whether you can put up with them for however long you intend to live there. At the end of the day, dealing with a less-than-perfect home while you get closer to buying your first property might be a good financial move.
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