Rent To Own Homes, Houses and Real Estate

What is Rent To Own Real Estate?

Normally you would look for a home, and once you have found that perfect home, in an ideal neighborhood, then you would arrange financing and purchase the property.

Rent or Lease To Own is a twist on that concept which allows more flexibility in making that purchase decision and allows for a change of mind. In the current economic environment when job losses are on buyers minds, the cost of fuel for transportationis rising, the neighborhoods that were once vibrant may change over a period of time, then flexibility is a concern.

With a lease to own property you would normally enter in a contract that has the following components:

o A Non-Refundable Option fee to purchase the Property at a

future date is established.


o A purchase price for the home is established and stays fixed

in the contract for the term of the lease.


o A lease period is established from 1 to 2 years.

o Provisions are made for maintenance of the home with the

leasees being responsible for a fixed sum of repairs
per month, while other repairs exceeding that sum
are the responsibility of the landlord.


o There may be on-time rental payment incentives.

o A supplemental payment may be made each month by lease

agreement toward the purchase price of the home.


o The leasee may benefit from a property value

appreciation during the term of the lease.


o At the end of the lease period, the leasee may walk away

from the property without further obligation.


o If the leasee purchases the property, then the monthly

supplemental rent toward the home purchase and the option payment are applied to the purchase price at
buying time.


o The leasee has the flexibility to purchase the property

any time during the lease period.

To reinforce the above, here is the Wikipedia definition:

Lease Option

As the name lease with an option to purchase says there are two events and one is not mandatory. In order to have a valid option the tenant/buyer must provide valuable consideration for the option. In other words buy the right to purchase at a later date at an agreed amount of money.

The lease option only binds the seller to sell, it does not bind the buyer to buy. That is why consideration is important. Valuable consideration is approximately 1-3% but there is no rule.

The basic elements are

1. Buyer purchases the option, the parties agree to what the cost of the option is.

2. The parties agree to a purchase price. It can be decided that the price will be the appraised value at the time the option is exercised.

3. The length in residential real estate is typically 1-3 years and may start to get longer because of the current credit conditions (spring 2010)

4. How much the monthly lease payment is, whether any of the lease payment is to be credited towards the purchase price reducing the purchase amount.

5. Whether the tenant/buyer will occupy the property or whether the tenant/buyer has the right to sub lease or the right to sell the option.

6. An investor may acquire a distressed property with a lease option and make improvements to the property. Then the investor can sell the option to a buyer that is willing to pay the new market value for a profit. It is a common financing technique with investors.

Flexible Sales Contract

In the Mortgage Broker Business, it is also possible to create a contract with 2 components:

A lease (rent) period during which the buyer can repair their credit history and accumulate more funds to be used in the home purchase. The term period is 3 months to 1 year and the buyer also signs a contract to purchase the property with a down payment. Failure to purchase the property by the end of the term period results in loss of the deposit.

Rent To Own Interest Form