How do rent to own properties work?

Question

My wife and I are looking to get into a rent-to-own property. I'm not sure how they work, though. Does the rent you initially pay come off of the purchase price when you buy? Can anyone explain to me in greater detail? Thanks.

Answer 1

There are several ways rent to own works, but here is an outline of some of the more popular ones:

#1 - You don't have down payment.  You enter into a contract to rent the property, a portion of your monthly rent is set aside for your down payment.  When the contract is up, the owner gives you the down payment money and you buy the house.

#2 - You have lousy credit or for some other reason cannot get a mortgage.  You rent the house, work on fixing your credit and when the contract is up, you buy the house.

How your rent is applied depends on the what your agreement says.

Owner carry, lease to own, rent to own are all basically the same animal.  There are decent people that are just looking for creative ways to get out of their house and then there are shysters looking to take your money - so be careful.  Make sure you have an attorney draft the contract or review the contract the owner brings to make sure you are protected.  It may seem like a waste of money now, but do make sure your attorney reads this.

I've been coming in here for awhile, and just about every day I do, there is a question about rent to own gone bad and what do I do now.  

The most heinous example to rent to own gone wrong that I know about is the couple entered into the contract.  They put a downpayment in, were making their payments as agreed but they felt the owner was looking for a way to boot them out and keep their down payment, so they were being careful to make it to the end of the contract.  There was a tree branch rubbing on the roof, so the tenant trimmed the branch back.  The landlord whipped out the contract that said no landscaping would be altered or removed without his permission, evicted them and kept their money.  Then put the house up as a rent to own again.  Great scam for the owner.

Answer 2

It depends on the individual contract you sign, and they can be very different, there is no mandated standard.  I'm going to urge you to be very careful about rent-to-own.  I know too many people who tried it, and ended up losing, big time.  Here's an explanation; when you rent to own, unless the price of the house at the time of sale is agreed upon at the time you begin renting, the house can appreciate faster than your payments can keep up.  I also know some people that paid more than rent every month thinking it was going to a down payment, it wasn't, the agreement they signed said the extra money would be deducted from the price of the house at the time of sale.  When they were ready to buy, the owner put a very high price on the house, much higher than it should have been.  He had them over a barrel because the house price was not agreed to.  They walked and lost 12 thousand dollars in the extra payments they made.  Be very very careful with this approach.  Why not just buy?  FHA offers first time buyers a lot of help, especially now.  Best of luck.