What Are Examples of Rent to Own Contracts?
Good examples of rent to own contracts should include such factors as due dates, escrow, and whether monthly rent would go to the purchase price of the home.3 min read
2. Rent to Own Traits
3. Seller Preference
4. Benefits and Drawbacks
Good examples of rent to own contracts should include such factors as due dates, escrow, and whether monthly rent would go to the purchase price of the home. A rent to own agreement outlines an arrangement between various parties in the leasing of a property, and it allows tenants to purchase the property when the leasing term ends. A rent to own contract must be drafted according to state landlord-tenant lease laws and follow a state’s real estate commission laws.
Rent to own contracts are also known as:
- Lease Option Agreements
- Lease to Own Agreements
- Lease with Option to Purchase Agreements
- Lease Purchase Contracts
- Option to Purchase Agreements
- Contract to Deed Agreements
Rent to Own Benefits
A rent to own agreement is applicable when tenants want to rent properties for a certain period, usually multiple years, while having the option to buy a property at or before the end of the lease. Rent to own contracts are beneficial to tenants for a variety of reasons. For instance, tenants may not have a down payment or insufficient income to obtain a loan. In addition, their credit scores may not be high enough, or they may not be ready to commit to homeownership.
If you wish to buy a home, but your credit score is not high enough, renting a property with the option to buy it later starts you on a path to homeownership. In addition, it is a great option for renters who wish to buy a particular home, but cannot do so right away.
In a slower market, lease option agreements give sellers additional options while securing steady income source. If you have a hard time selling a property in a slow market, a rent to own contract can you enhance your cashflow until you sell the property.
Rent to Own Traits
Sellers and buyers can benefit with the assistance an attorney who specializes in real estate. A rent to own contract lists the same attributes seen in a normal lease agreement, such as:
- Due date and monthly payment
- Late fees and grace periods
- Description of property
- Homeowner and tenant info
- Lease term
Rent to own agreements include details, including:
- Option fees
- Portion of rent going to the purchase price
- Penalties if the agreement is violated
- The way the property price will be assessed
Review all documents carefully, and you should make sure you fully understand the terms and conditions of the agreement before signing. You must assess a rent to own agreement carefully, but it is an agreement that benefits both parties and worth entering into.
Sellers tend to offer a rent to own option if they do not intend to sell the property, or in the following cases:
- A rent to own agreement comes with a higher sales price if the market declines
- A contract lists tenants who properly care for the property
- A contract possesses a longer rental term that has steady income
- The seller has a positive cashflow on the property
- The agreement comes with minimal risk and an option fee that’s not refundable
Further, a seller may place additional rents into a safeguarded escrow account that will go to the down payment. Certain sellers may place additional funds that’s paid off to the purchase price of the property. A rent to own agreement also has no commission that needs to be paid to brokers. If the property has a hard time being sold, a rent to own agreement could be a sound way to sell the property later. In addition, rent received with the option fee tends to be above market average.
Benefits and Drawbacks
A rent to own agreement allows tenants to get an exclusive option that other buyers may not receive. A drawback for sellers is that they must sell the property for less than the current market value if the agreement mandates a set buying price.
On the other hand, rent to own can work in a seller’s favor. For owners with no tenants and no rent to own agreement, potential buyers could lose interest, especially if the market shifts in an unfavorable light. Therefore, the seller would be left with a property that’s difficult to sell and has no cashflow if the property is unoccupied.
If you need to find examples of rent to own contracts, submit your legal inquiry to our UpCounsel marketplace. UpCounsel has a variety of experienced lawyers that will help you draft a rent to own agreement if you wish to create a rent to own program for your property. In addition, our lawyers will help renters understand contract terms and invoke their rights as tenants.