Typically, when making a real estate purchase, your offer needs to be accepted right? Well, once your offer is accepted, final costs need to be paid off before completing the transaction. However, when someone comes across a property they want to buy, it doesn’t always mean that they are financially ready to follow through with the purchase. It is common for people to take out a mortgage when buying real estate. Don’t worry though, you have other options available when purchasing real estate! You have the option to go with a “rent to own” agreement. Not sure what that means? No worries, we’ll help you understand!
Defining “Rent to Own”
Rent-to-own is also known as rental-purchase or rent-to-buy. This option gives the buyer a chance to buy the property in the future. Basically, it’s a secure agreement between the seller (owner of the property) and the buyer (tenant). The tenant can rent the property for a certain amount of time before buying then officially owning the real estate property. Rental purchase agreements usually consist of a basic lease agreement and the option to buy later on.
Usually, in a rent-to-own agreement, the buyer pays a one-time fee. This fee is typically nonrefundable. This fee serves the purpose of giving you the option, later down the road, to become the official owner of the real estate property. You can try to negotiate the fee considering that there isn’t a fixed rate for it.
The difference between a Lease-Option & a Lease-Purchase
There are various types of options when it comes to rent-to-own agreements. Lease-option agreements give you the option to purchase the property whenever the lease is up. If you don’t want to buy the home by the time the lease is up, the option will expire. You can decide to step back without any obligations to proceed with paying rent or even buying later. On the other hand, things are a bit different when dealing with a lease-purchase contract. A Lease purchase obligates the buyer to purchase the home by the time the lease is up. These are two different leasing options, make sure to be aware of the differences!
Purchase Price Agreement
Agreements for rent-to-own should be specific about when and how the price of the home is found. Sometimes, the seller and the buyer are both set on a purchase price, commonly at a higher price than the market value at that given time. It’s common for a buyer to secure the purchase price. This is especially true when the market is going up.
Before Signing the Agreement
- Decide on the right terms
- Ask for help
- Look over the Contract & Understand the following:
- Deadlines and dates
- Rent Payments and Option Fees (How much goes towards the purchase price)
- Purchase price – How was it determined?
- Are pets allowed
- Maintenance – Who’s responsible for this?
- Additional fees and monthly dues of any sort
- Research the seller
- Research the property
- Do not skip the fine print
- Double-check everything
Hopefully, We were able to provide you with valuable information regarding the subject matter! If you’re interested in learning more about rent-to-own properties feel free to contact us here at High Peaks Capital! Any curiosity or any questions about the process, we’re ready to help!