Rent to own houses, homes or real estate aka lease option or lease to own is effectively a real estate agreement which consists of a rental lease and a purchase agreement where the tenant has the option to buy the property at an agreed upon price at some point in the future. Rent to own is also referred to as lease to buy, lease to purchase option, lease option, lease to buy option, owner financing, seller financing, and lease to own.
The rent to own agreement is similar to common rental agreement or lease agreement where the seller (aka as the lessor in legal ease ) allows the buyer ( aka as lessee in legal ease ) to occupy the property in return for a monthly payment. The option to buy the property is usually at a pre determined price for which the property is to be purchased and the time frame during which the buyer/tenant is able to exercise that option to purchase the home.
Rent to own or lease to own etc commonly becomes more popular during downturns in the real estate marketplace as sellers may need to vacate a property before it is sold and do not want or cannot afford to make 2 payments. Often times sellers give rent credit to attract potential buyers as a way to move the property more quickly. This is also good for potential buyers looking for rent to own properties as it gives them time to build their credit issues back up.
Advantages of rent to own
Renters are able to put money towards the purchase of their home
Renters are able to overcome possible poor credit situations
Seller/landlords can begin to dispose of a property which no longer meets their property ownership requirements.
Tenant/Buyers are able to 'lock-in' the sale price of the property when signing the agreement and enjoy the benefits of potential appreciating market values over the term of the contract upon exercising the option.
Disadvantages of rent to own
The tenant/buyer could choose not to purchase the property.
The tenant/buyer could also lose some or all of their deposits and rental credits.