Did you know a lot of people look at investing in real estate? If you want to learn more about rent-to-own properties, we can help.
This guide will go over more about owning rental property and why you should consider this option.
Want to learn more? Keep reading.
Learn About Nonrefundable Fees
Often, there’s a one-time fee that a buyer will need to pay in a rent-to-own agreement. The fee tends to be nonrefundable. It is usually called either an option fee or option consideration.
The fee will give you the option later to buy the house by a specific date. The option fee tends to be negotiable, and there isn’t a standard rate.
The cost will range between one and five percent of the purchase price.
What About Lease-Purchase and Lease-Option Contracts?
There are different kinds of rent-to-own contacts. Some are a little more flexible for consumers. Lease-option contracts give you the right but not the obligation to buy the house.
If you don’t buy the property once the lease ends, the option will expire. You can walk away without obligations to purchase or rent the house. You won’t have this option with lease-purchase contracts.
If you want the option to buy without the obligation to purchase, you’ll need a lease-option contract.
Make sure you have a qualified real estate attorney review the agreement beforehand. You want to know what you’re signing and avoid significant stresses later.
You might have a legal obligation to buy the house with lease-purchase contracts. You will need to purchase the home even if you can’t afford it.
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Make Sure You Agree on a Purchase Price
Rent-to-own agreements explain the house’s purchase price. In some situations, you and the seller will agree on a fee after signing the contract. Usually, this occurs at a higher price than even the current value.
Yet, sometimes, the price will get decided after the lease expires. The current market value determines the fee. Most buyers want a ‘lock in’ option if the prices rise.
What About Rent and Paying Down the Principal?
Did you know you can pay rent throughout the lease and pay on the principal?
If you spend 1000 dollars in rent each month for a few years, a percent could get credited toward the principal. The rent will be higher for the area to make up for the rent credit.
Yet, before you sign anything, make sure you understand what you pay for with your premium.
What About Maintenance Work?
Who’s responsible for maintenance work will depend on the contract terms. You might have to cover repairs and maintain the property.
Most of the time, renters don’t need to worry about maintenance and property care.
The landlord will usually take on these responsibilities. Make sure you go over the contract and understand your duties for the rental.
Consider getting a renter’s insurance policy to cover potential losses to property. Also, it will provide coverage if someone gets hurt in your home by accident.
Sellers will remain responsible for homeowner association fees, insurance, and taxes.
Repair and maintenance work will get outlined in your contract. You might need to clean out the gutters, take care of snow removal, or mow the lawn in the summer.
Ensure you understand the terms and what you need to take care of before signing the contract.
What About When You Buy the Property?
If the contract ends, you’ll need to get a mortgage to pay for the house. You will need to pay the seller in full when you choose to buy the property.
If you don’t buy the house or get the financing secured, you will move out of the home.
You’ll have to forfeit the money paid to the house at this point, like the option money or even rent credit. You’ll look at renting another home.
If you have a lease-purchase contract, you might have a legal obligation to buy the home after the lease ends. This is a challenge if you can’t secure a mortgage.
Lease-option contracts are the preferred option compared to lease-purchase contracts. They offer more flexibility.
Make sure you treat this process like you would if you were buying a house outright. Spend time comparing prices, researching the area, and looking over the contract.
What Are Some Drawbacks?
Renting-to-buy will have some issues. You should spend time considering if you think the risks are worth the reward.
If you don’t want to buy the house down the road, you could lose the option fee payment. You’ll also lose out on the extra rent payment you pay each month.
If you do want to buy the house after the rental period, you might not be able to if you have financial problems.
You could lose out also if the house ends up losing value during the rental period. Once you agree on the price, you won’t have a chance to change the price.
If you agree to pay a certain sum and the house value changes, you will still need to pay the original amount.
If the house does rise in value, however, you will gain money. You can buy the house for less than what other buyers would.
Rent to Own Properties
We hope this guide on rent-to-own properties was helpful. Consider if you want to buy a home or have the option to rent another place after.
Are you looking for more real estate tips? We have a lot of resources on the blog for you to check out today.