How does "rent-to-own" work?

Question

My friend's mother has a condo that she owns and there's been talk of me staying there on a "rent-to-own" basis. Does that mean all of my rent would eventually go toward buying the place or a portion of it? Do I even have the right idea there?

Answer 1

"rent-to-own" is a clever little sort of leasing system for the business that offers it.  Essentially what happens is you are given the item, however it remains the property and reclaimable by the business that "rented" it to you until the full amount of price of the item is paid off.  The strategy is intended to draw in customers by making an item seem more affordable through showing how low each payment is, however the end price tag is still the same.  

If at any point in time you are remiss in your payments they may contact a credit agency, or repossession service, or simply you, in order to have their property returned.  I'm sure there will be a leasing agreement that says under what conditions they may repossess the items under that will explain in detail the specifics.  I recall negotiating someones tenant contract recently that is bound by some interesting regulations that the leasing officer was actually in violation of the tenant act by trying to enforce, fortunately they settled in a reasonable fashion offering a settlement that was acceptable.  I reccommend you look into local law and regulations if you are not going through a major chain and do not like the conditions of the contract.  

Oh sorry, a condo, yes you need to look at what the local tenant act says in regards to this if you are renting.  

Though my instinct here is that this would not actually count as a rental but rather a property loan.  Where they are essentially loaning you the money for the property, or a portion of the property, and then having you buy that portion from them.  Rather convenient system as it cuts down on paperwork.  You and this other party should really see about drawing up a contract including what should happen if one or both of you are found in violation of the contract.  And they can count a portion of your payments as tenant expenses and put it against their income as a business expense.  

You really should get a copy of your local tenant act.

Answer 2

That means the "rent" you pay every month is equal to a house payment.

Answer 3

You have the right idea.  Under a typical rent-to-own, a portion of the "rent" is put in an escrow account which is then put towards the down payment if you decide to buy the property.  Below is a link to how a typical rent-to-own agreement works.

Answer 4

It means you get charged over and above the normal rental amount and the extra amount goes toward buying the place.  Nothing but the extra amount goes towards buying the place, not your entire rent payment.  If you decide not to buy, your friend's mom can keep the extra money you paid.

Be very careful with the paperwork on an agreement like this.  

A better deal would be to rent the place for the normal amount and stash a certain amount towards buying a place of your own later--any place you want.  A rent to own agreement means you must buy that particular condo or you lose all the extra money you paid.