Benefits Of Rent To Own Investment Property

If you ever wish to possess your own home but are not able to secure conventional funding today, leasing a house with an option to purchase could be the best choice. A rent purchase can make your lease money work for you rather than helping to make your landlord rich. Usually lease to own homes come with rent credits that will reduce the final purchase price!

Here's how it works:

A home is made available by using a typical lease along with one significant add-on. Included is an option to acquire that home at a stipulated price over a stipulated period of time (generally a few years). To be able to get that option, the renter/buyer need to pay a one time, NON REFUNDABLE, charge referred to as the option consideration. The precise sum is negotiable, nonetheless it is generally varies from 2.5% to 7% of the purchase price. A good contract will credit the purchaser 100% of the option consideration upon closing of the sale. Additionally a negotiated percentage of all lease transactions has to be applied toward the purchase price of the property. Some standard terms and conditions one may find in a contract follows:

* To be able to obtain a lease credit of 50%, time is important. It's essential to pay your lease on or BEFORE the due date of the lease (often the 1st of the month). This means it has to be received by the lessor (landlord) on or prior to the due date. Any payment obtained after the due date will result in a 0% lease credit for that particular month, a late fee may apply and you will not be building any sort of equity.

* Servicing is the responsibility of the Tenant Purchaser. You are now renting to own and homeownership calls for repairs and maintenance. This can include things such as broken windows from stones or even baseballs, clogged drains, damaged paint, broken appliances, burnt out lights, yard work, etc. If any serious repairs are required to ensure habitability, the owner is still responsible.

* You need to have Option Consideration. Option Consideration is typically 2.5% to 7% of the purchase price of the property. It is a non-refundable payment, of which 100% is offset against the purchase price, that binds the lease purchase contract.


Here's a sample transaction:

You come across a pleasant 3 bedroom, 1 bath single family home situated in a terrific location with very good schools and also a solid community members. It has been recently painted, cleaned up, and is ready to move in. The price shall be $215,000. Monthly lease payments shall be $1,500 and you will also be given a 50% lease discount ($750 a month). You will need around 2.5% and 7% in advance Option Consideration. For example your budget allows for $6,000 for the purpose of Option Consideration. This equates to approximately 2.8% ($6,000/215,000). You will also need $1,500 to cover the first months lease for a total first payment of $7,500.

Please note: Option consideration is not a security down payment. It is a non refundable payment toward the purchase price and is 100% credited toward decreasing the buying price of the property.

Now let's assume you paid all your monthly lease payments on or ahead of the due date and you decide to buy the lease to own home at the expiration of the 12 month rent purchase contract. You should have $15,000 in equity before you even own the home! This is the calculation:


Lease Purchase Price - $215,000

Less: Option Consideration paid at lease signing - $6,000

Less: 50% rent credit of $750/m x 12 months - $9,000

Net Purchase Price after credits - $200,000


You began with $6,000 through paying your lease in a timely manner; your equity placement grew 150% (an additional $9,000) for a full amount of of $15,000 with 12 months. Not a terrible offer! A lot of people find it nearly impossible to save $9,000 in a year considering all the costs of living frequently increasing.

What's the catch?

Now you might be thinking, "OK, what's the catch? This appears too good to be real."

Answer, there isn't any catch.

There's lots of possible factors a landlord/seller may want to get into a lease to own agreement. Some factors could be:

- Has to retain ownership for at least a year for tax requirements.
- Cannot receive a good price due to local circumstances.
- Fed up with performing minor repair.

On top of that, whenever someone sells a home through a real estate service, a commission of 5%-7% is usually paid. In the example above, this can be more expensive compared to lease credit. Considering that realtors are generally not associated with this type of transaction, there isn't any commission and the landlord is able to pass off the savings to tenant/buyer by means of lease credits.

Also, as soon as the Tenant becomes the Tenant Buyer (via lease to own), it comes with an instantaneous feeling of pleasure in ownership. Tenant Buyers add value to the community. They take care of their soon to be property, make improvements, and feel great knowing their lease money is working for them (decreasing the purchase price) rather than just making their Landlord rich.

There are also many perks for the renter:

- Build equity toward owning a home.
- No bank or finance company in the picture.
- Poor credit record might not be a concern.

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