Lease options, or rent to owns (interchangeable terms), are a great way for people to get themselves into a house that otherwise can’t qualify at the time of wanting to purchase. Although they can seem somewhat complicated, they aren’t really bad at all. The idea is that instead of renting a place to put cash flow into the pocket of the landlord, they are slowly contributing to the mortgage which they legally have the right to buy at the the end of the term of their contract. This is where the term lease option gets its name: leasing a property with the option to purchase at the end of the term.
TENANT:
- Not wasting their monthly income on rent
- Slowly working at purchasing a home which can eventually bring wealth through equity
- Depending on the contract have the ability to make desired changes and improvements to their own liking
- Having the ability to own a property in the future even if they can’t qualify presently based on debt, income or credit ratings
LAND OWNER:
- Guaranteed sale of property
- Monthly cash flow via rental income
- Deposit and payout when the contract comes to terms
- Minimal maintenance required (homeowner will take care of it)
- Guaranteed tenant for the length of term
- Property will be well taken care of because their is a sense of ownership
Understanding Rent to Own in 4 easy steps:
- Do your research! Find an area that you could see yourself enjoying long term. Go to open houses, view the properties that are listed, check out different neighbourhoods, etc. Shop around! This is the fun part, because the truth is you are essentially looking for your forever home, or at least a home that you will eventually own. It better be one that you absolutely love! Make sure that once you find a property that suits your needs, you continue your research. You have the ability to pull title on the property and check to see if there are any outstanding liens, foreclosures or inaccuracies that would affect you mid-way through your lease.
- Negotiate your deal. You wouldn’t walk into a car dealership to lease a vehicle without understanding how many km/year you’re allowed to put on before driving away, so make sure you do the same with your lease agreement. When entering into a rent to own, there are a few added parts that signing a standard lease agreement to rent out a property. Generally, I would suggest working with professional lease option companies and trained investors to ensure you get the best deal for yourself. Even having a lawyer look over your documentation is highly recommended.
- Leasing the house. Now you get to move in! Make your payments and enjoy living in the house you are working to own.
- Improve your credit. This is critical. You have signed a contract to purchase the property, so you MUST take the necessary steps to improve your credit and/or purchasing ability to qualify for the mortgage once your term is up. Otherwise your investment (rent money) will be wasted.
Rent to own, or lease options can be a great way to give someone the chance to earn equity when they otherwise couldn’t. Unfortunately, there are many companies out there that abuse the term and tarnish the concept for others. The important thing is to do your own research.
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