It seems like the ideal situation: you can’t afford to buy right now (when prices are at the bottom) and/or you can’t qualify for a mortgage. So you sign an agreement that allows you to rent for, say, 1-3 years (which you’d have to do anyway) and then buy the home you’ve been renting at today’s price. It’s not too good to be true, it’s called a rent-to-own agreement.
Clearly, a rent-to-own agreement is good for renters/buyers in a market like today’s Phoenix real estate market. But it can be good for sellers, too – if they can’t sell their home today, they can rent it out, plus get an option payment (typically 1-5% of the agreed-on purchase price) and an additional amount on top of every month’s rent (called the rent premium).
Yet while rent-to-own agreements can be a win-win for Phoenix home buyers and Phoenix home sellers alike, they are incredibly complex (much more than a traditional sales contract) and filled with potential pitfalls on both sides.
People considering a rent-to-own agreement should keep these tips in mind:
- The lease-option contract should include all of the provisions that a traditional purchase contract would include.
- Everything that the renters/buyers and sellers agree on should be in writing.
- Both parties should make sure that they understand every word of the contract they signed. Consider a real estate agent experienced with rent-to-own agreements and/or a real estate attorney to help.
Learn more about rent-to-own agreements and why they can make sense in the Phoenix real estate market: Phoenix Real Estate Blog: Rent-to-Own Agreements 101.
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