5 Reasons Why You Should Avoid Rent-To-Own Home Contracts

By
Real Estate Broker/Owner with Cam Realty and Property Management

5 Reasons Why You Should Avoid Rent-To-Own Home Contracts

After renting for so many years, you calculate the amount of money paid in rent payments, you get the urge of exploring the idea of purchasing a home. The first thing you probably do is to browse online and see what’s for sale in the area you’re interested in. You find a few homes you like and save them in your search. What do you do next? If you contact the listing agent, they will most likely ask for a pre-approval letter or proof of funds. So, why not start from there to begin with. You remember seeing a commercial on TV from a lending institution that offers to pay all your closing costs. Great idea! So, you call them only to find out you can’t qualify for a mortgage at this time. What’s next? Keep googling, you’ll find a solution! You stumble upon a post about rent-to-own homes. Perfect!


Is it perfect though? What is a rent-to-own home and how does it work? In a rent-to-own contract, the seller agrees to hold a portion of the rent towards a down payment. The rent option may be several months or several years depending on the agreement. At the end of the term, the buyer must get pre-approved for a mortgage and purchase the home at the agreed-upon price. Sounds good so far? Well, not so much. Here are 5 reasons why rent-to-own homes may not be so favorable to the buyer.

-Home prices change. The home you fell in love with may not worth as much in a few years.

Real estate market changes. Granted, home prices have been going up for the past few years but will the trend continue? The truth is, nobody knows for certain.


-You may decide to move to a different area in a few years. It may be the climate, job, family but we do change our minds on where we want to live.

-You may be responsible for the repairs and the maintenance of the home you don’t yet own. Let’s face it, homes need constant maintenance. Making repairs and maintaining your own home is one thing but are you prepared to spend money making repairs on someone else’s home?

-Option money. Most sellers entering into a rent-to-own contract will ask for a non-refundable deposit at the beginning. The amount of the option money is agreed upon between the seller and the buyer. In most contracts, it will go towards the purchase. Be sure to read the fine line, you may lose this money if you decide not to go through with the purchase.

-Higher rent. Most rent-to-own homes have higher monthly rents than typical for the area. Although the part of the rent goes towards your purchase, you’ll still be paying a higher rent.

I would highly recommend contacting a local, knowledgeable REALTOR® who can direct you in the process. While browsing online is OK, you can’t trust everything you read. 


If you are looking to buy or sell a home in Clermont, Minneola, Groveland, Mascotte, Winter Garden areas, I would love the opportunity to speak with you. Please call/text me at 407-929-1852, email bethatalay@gmail.com or visit www.WhereToLiveInOrlando.com 


5 Reasons Why You Should Avoid Rent-To-Own Home Contracts

Comments (32)

Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Very seldom does a rent to own contract work to a buyer's advantage for all the reasons you offered

Dec 21, 2020 02:02 PM
Beth Atalay

I agree Ed Silva 

Dec 21, 2020 03:01 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Beth I agree, rent-to-own is a bad for the reasons you mentioned, but there is one more.  The reason why the rent payment is higher in a rent-to-own contract is because lending guideline only allow the portion of the rent the renter pays over the comparable market rent in the same area.  Sellers, even in a rent-to-own contract, can only contribute that amount towards the down payment.  So why pay the seller more each month, for him to earn money on the additional amount, when you can do that yourself.  A better option is to pay the going rent amount, and have the seller contribute up to 6% of the selling price towards the closing costs.

Dec 21, 2020 02:42 PM
Beth Atalay

Thank you so much for this comment George Souto. It makes sense. 

Dec 21, 2020 03:02 PM
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Flower Mound, TX
Selling Homes Changing Lives

Beth Atalay - This is a great explanation. Congratulations on being FEATURED!

TX REALTORS are not allowed to write a contract-to-own because it's considered practicing law. Only a Real Estate Attorney can do this in TX. 

Dec 21, 2020 03:30 PM
Beth Atalay

Hi Patricia Feager, MBA, CRS, GRI,MRP, as it should be. My advice is to consult an attorney. I certainly don't want to be part of it. 

Dec 23, 2020 07:25 AM
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Beth- all excellent points to consider!  It can sound good but anyone considering it should read this. Things change, market conditions change, so many factors to consider. 

Dec 21, 2020 07:40 PM
Beth Atalay

Kathy Streib, the idea sounds great but may not go that way at all. 

Dec 23, 2020 07:24 AM
Adam Feinberg
Elegran - Manhattan, NY
NYC Condo, Co-op, and Townhouse specialist

I had a buyer ask me about rent to own a few weeks ago. I tried talking her out of it, but she was convinced no matter what I said that it was worth pursuing. In her situation, it wasn't a horrible idea, but not one I was recommending. I think for her, it's fortunate that I have only seen rent to own in Manhattan on overpriced developer units that the developer can't sell- and she won't pay those level of prices. 

Dec 21, 2020 11:28 PM
Beth Atalay

I hope it goes well for her Adam Feinberg 

Dec 23, 2020 07:24 AM
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Interesting post, yet, there are exceptions to almost anything, so, it depends on the circumstances. I would think most rent to own are for luxury type homes and the terms and conditions are always negotiable with any transaction. So, it depends, doesn't it? 

Dec 22, 2020 12:15 AM
Beth Atalay

Hi Kimo Jarrett, of course it depends, before entering into an agreement, consult a professional.  

Dec 23, 2020 07:23 AM
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

If the buyer can not get financing, he or she thinks take the bait, rent to own is better than nothing. My only option because a bank won't touch me with a ten foot pole (for good reasons hiding in their credit history closet).

The house mortgage under foreclosure, the deputy or trooper serving the notice to move, signaling the eviction process is starting. Rut rho. So much the buyer is not aware of because no real estate agent, no attorney in their corner spelling out the pit falls to each side of what can happen and does in rent to own 101.

The rent to own buyer who does not make his payments that trigger the foreclosure for lack of monthly rent, taxes, insurance. Or the seller who receives the payment but does not apply it to the mortgage debt. Siphons it off the sinking ship already close to foreclosure completion that is overloaded with mechanic liens, past due everything.

Unhappy ending and all those improvements to the home you thought you were renting to own thinking you are in it for the long haul that do not pan out in the house of cards now swirling down the drain. Back to couch surfing or sleeping in your car rent to own that lost everything. Great post Beth Atalay spelling out the pitfalls of rent to own.

Dec 22, 2020 03:46 AM
Beth Atalay

Great comment Andrew Mooers | 207.532.6573, thank you! 

Dec 23, 2020 07:22 AM
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

Wonderful explanation. Thanks for sharing this! 

Dec 22, 2020 04:58 AM
Beth Atalay

Thank you so much Joe Jackson 

Dec 23, 2020 07:21 AM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, eXp Realty - Kalispell, MT
Helping your Montana dreams take root

Fantastic explanation! I had several people who were interested in rent-to-own in the past, but due to some of the points you make, they decided not to. I've never had anyone actually go forward with their rent-to-own plans.

Dec 22, 2020 05:16 AM
Beth Atalay

Thank you so much Kat Palmiotti, the only person who helped a buyer with a rent-to-own is a REALTOR® who is now retired, the transaction was in the 80's. 

Dec 23, 2020 07:21 AM
Brian England
Vacasa - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

I have heard nothing but nightmare stories from those that have tried the rent-to-own option.  It definitely is not a good one.

Dec 22, 2020 05:26 AM
Beth Atalay

I have too Brian England 

Dec 23, 2020 07:20 AM
Anne Corbin
Long and Foster - Lake Anna - Spotsylvania, VA
Serving Lake Anna & Central Virginia

Very good points. Sometimes, it is hard to ask the question if you don't know what to ask. This will open the door to many who are thinking about this road.

Dec 22, 2020 06:28 AM
Beth Atalay

You're so right Anne Corbin, those who don't understand what it entails wouldn't know what to ask. 

Dec 23, 2020 07:19 AM
Rocky Dickerson
Realty One Group - Las Vegas, NV
Superior Service!

Good morning Beth Atalay very helpful and informative post. Full of points for buyers to be aware of - especially heading into 2021.

Dec 22, 2020 07:50 AM
Beth Atalay

Thank you so much Rocky Dickerson 

Dec 23, 2020 07:19 AM
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Great advice, Beth Atalay - you are a valuable resource in your market. Hope you're having time to enjoy this beautiful season too. D 

Dec 22, 2020 08:29 AM
Beth Atalay

Thank you so much for your kind words Debb Janes EcoBroker and Bernie Stea JD, I appreciate you. Have a wonderful Christmas! 

Dec 23, 2020 07:18 AM
Margaret Goss
Baird & Warner Real Estate - Winnetka, IL
Chicago's North Shore & Winnetka Real Estate

Rent-to-own sounds great and I've been asked about it several times. But in 22 years of real estate I've never done it nor do I know anyone else that has. You've made great points that I'll save when the conversation comes up again.

Dec 22, 2020 10:08 AM
Beth Atalay

Hi Margaret Goss, like you, I get this question asked all the time, never done one yet and don't want to either. 

Dec 23, 2020 07:18 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good afternoon Beth Atalay ,

Glad to see your post featured.....we don't have promulgated forms to rent to own in Texas anymore..they highly discourage the sale and can only done with an attorney.

Dec 22, 2020 10:54 AM
Beth Atalay

Hi Dorie Dillard CRS GRI ABR, getting advice in this situation is a great idea. 

Dec 23, 2020 07:16 AM
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

Good job explaining the benefits & pitfalls of this type of transaction. Like Margaret Goss said above, all these years & I've never completed one for a buyer.

Dec 22, 2020 01:50 PM
Beth Atalay

I've yet to do one also Lyn Sims 

Dec 23, 2020 07:16 AM
Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Denver Broker / Author / Advocate/Short Sale

I have been a Broker since 1984, I have never worked a lease-to-own or rent-to-own contract.  Too many issues can arise from them.  GET a good real estate attorney and approach this situation with a owner carry scenario... safer bet than the rent-to-own.

Dec 23, 2020 01:53 PM
J Perrin Cornell
Coldwell Banker Cascade Real Estate - Wenatchee, WA
Broker, ABR, VAMRES

Each state may be different. But rent to own can be a problem. If that is the only option I try to do a real estate contract. A little safer for the buyer... avoids some of the pitfalls and gives the seller some assurances too... payments escrowed at a bank, etc. However, one draw back (as an agent) how do you get paid. The seller will need at least 9-10% down or they walk away with no $$ in their pocket. As an agent I'm not inclined to take my fee over 24-36 mos. Finally, many that want to follow this route (rent or contract) are doing so because of credit issues. MOST (not all certainly) are pretty much in denial (not a river in Egypt) . Ill have my credit ok or my income up or both in a year... but that seldom happens

Dec 24, 2020 09:45 AM
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
CRS

I disagree with your assesment. Better word for rent to own is lease purchase or lease option or land contract. If written propety the documentation can protect the seller and the buyer especially if they are recorded

Dec 28, 2020 04:43 AM
Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI
HomeSmart Real Estate - Scottsdale, AZ
Arizona Homes and Land Group/ Buy or Sell

Yes, I agree that parties should be wary. I see more right of first refusal clauses in a lease contract without a firm option price into the future. Realtors have a hard enough time forecasting for sale prices 1 year into the future, let alone where a rent to own home will be valued with an option price. Good subject Beth Atalay. Jeff 😎 

Jan 04, 2021 12:05 PM

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