How To Find Rent-To-Own Homes: A Guide

A rent-to-own home is a type of property that’s rented for a certain amount of time before it is eventually bought and owned by the renter. A portion of the monthly rent payment in the beginning of this agreement will go toward a down payment so the tenant will have some financial stake in the home by the time they decide to own it.

But, before you enter into this unique real estate agreement, you’ll need to search for a rent-to-own property. Let’s discuss the different ways you can go about finding this kind of home.

How Rent-to-Own Programs Work

Rent-to-own programs offer an alternative path to homeownership, allowing renters the option to purchase the property after a set period. The process begins with the buyer and seller negotiating key terms, such as the purchase price of the property, the length of the lease, and the monthly rent. A portion of the monthly rent often goes toward the eventual down payment or purchase price, but this can vary depending on the agreement. In addition, both parties will outline specific conditions for the future purchase, such as maintenance responsibilities or whether the buyer has the option to walk away without purchasing.

Once terms are agreed upon, the details are formalized in a legally binding contract. This document will cover all aspects of the arrangement, including the duration of the lease, the agreed-upon purchase price, and any contingencies related to the option to buy. It's essential that both buyer and seller fully understand these terms, as they govern the entire rent-to-own process and ensure clarity for both sides moving forward.

Types of Rent-To-Own Agreements

There are two primary types of rent-to-own agreements: the lease purchase agreement and the lease option agreement, both offering different levels of commitment and flexibility.

A lease purchase agreement is a binding contract in which the buyer is legally obligated to purchase the property at the end of the lease term. This means that, assuming the buyer meets the agreed-upon terms, the purchase is guaranteed. Typically lasting 1 –3 years, the lease allows for part of the monthly rent to be credited toward the final purchase price. This agreement provides a clear, fixed path to homeownership, with little room for renegotiation once the lease concludes.

On the other hand, a lease option agreement grants the buyer the right, but not the obligation, to purchase the property after the lease period. In this case, the buyer can choose to walk away from the deal without purchasing, losing only the option fee, which is usually paid upfront. If the buyer decides to exercise the option to buy, the fee can often be credited toward the final purchase price. This type of agreement offers greater flexibility for the buyer, while the seller retains the potential for a sale if the buyer decides to proceed.

Pros And Cons Of Rent-To-Own For Sellers

Rent-to-own can offer sellers steady rental income and the potential for a future sale, but it comes with risks. If the buyer decides not to purchase, the seller must relist the property, and they may be locked into the agreed purchase price even if market conditions shift.

Pros

• Steady income stream: Sellers receive regular rental payments throughout the lease period, providing a reliable cash flow.
• Attracts more buyers: Rent-to-own agreements appeal to buyers who may not qualify for a traditional mortgage, expanding the pool of potential buyers.
• Potential for higher sales price: Sellers may be able to set a higher purchase price, especially if the property’s value appreciates over the lease term.
• Less market competition: Rent-to-own properties can stand out in markets with fewer options, giving sellers an edge over other listings.
• Commitment from buyers: Rent-to-own agreements typically attract more committed buyers who are working toward eventual ownership, reducing turnover.
• Opportunity for repairs: Sellers can negotiate maintenance and repair responsibilities with tenants, ensuring the property is well-maintained.
• Equity building: As rent payments are made, part of the rent may go toward the future purchase, helping sellers secure a smoother transition to sale.
• Flexible terms: Sellers can tailor the lease and purchase conditions to meet their needs, offering flexibility in negotiations.

Cons

• Potential financial risk: Sellers may face financial loss if the buyer chooses not to purchase, leaving the seller to relist and potentially sell for less.
• Market fluctuations: If property values decline during the lease period, the seller might be locked into an agreed price that’s no longer competitive.
• Lease management: Sellers are responsible for managing the lease agreement, which can involve extra time and effort, especially in ensuring the buyer complies with terms.
• Buyer default: If the buyer defaults on rent payments, the seller may face legal challenges and financial losses, particularly if eviction is necessary.
• Legal complications: Rent-to-own agreements can be complex, requiring careful drafting to avoid potential legal disputes over contract terms and conditions.
• Limited pool of buyers: Not all buyers are familiar with or interested in rent-to-own, reducing the overall pool of potential purchasers.
• Inconsistent cash flow: Depending on the buyer’s payment habits, the seller may experience inconsistent or delayed rental payments, affecting their cash flow.
• Extended time to sell: The lease period can extend the time it takes to finalize a sale, potentially delaying the seller’s ability to move on to another investment.
• Potential for property damage: Renters may not take as much care of the property as owners, leading to potential wear and tear that could be costly to repair.
• Escape clauses: If the agreement includes escape clauses, the buyer could walk away from the deal, leaving the seller to start the selling process over again.

How To Find A Rent-To-Own Home: 5 Different Ways

As with any home purchase, there are many ways to find what you’re looking for. We’re explaining the several different ways you can find rent-to-own homes.

1. Connect With A Real Estate Agent

A common way for people to find homes is to work with a real estate agent. Not only can they help you navigate the real estate market, but they can give you some solid advice when it comes to the ins and outs of the home buying process.

It’s also important to make sure the real estate agent you work with is familiar with rent-to-own homes and the agreements that come with those types of homes. If you’ve never been involved in a rent-to-own transaction before, having someone on your side who understands the process will be extremely helpful. Real estate agents can also help you stay within your home buying budget so you don’t waste time looking at properties that are out of your price range.

2. Search The Local Real Estate Market

While this might be obvious, there are pockets of the real estate market that are ideal for finding rent-to-own properties. This includes properties that have maybe been listed on the market for a long time with no promising activity or properties that are in preforeclosure. The owners of either of these kinds of properties could benefit from a lease option contract or a lease purchase agreement, giving you the chance to potentially make an enticing rent-to-own offer.

Checking the local real estate market on a regular basis is a simple way to keep your eye on unique properties that might be ideal for this type of arrangement.

3. Apply For A Rent-To-Own Program

There are various rent-to-own programs that can help people find a home. These programs have different qualifications and requirements (credit score, debt-to-income ratio, income, etc.) potential buyers will need to meet in order to get their application approved.

Performing a simple search online can help you find local rent-to-own programs that are specific to your area or you can even find national or regional programs. Once you’ve properly researched these programs, you’ll have enough knowledge to select which one fits your needs and can best help you eventually become a homeowner.

Here are just a couple of rent-to-own programs offered in various states nationwide:

• Home Partners of America
• Divvy
• Dream America
• Trio
• Verbhouse, Inc

4. Utilize A Rent-To-Own Portal

Rent-to-own portals are databases designed to help people locate available rent-to-own properties. However, these portals usually come with a monthly fee. It’s also important to note that not every portal can guarantee that all of the listed properties are rent-to-own, but they might have the option to turn into a lease purchase agreement.

As we mentioned earlier, properties that are in preforeclosure or have been sitting on the market for a long time could be ideal candidates for a type of rent-to-own agreement.

5. Present An Offer To An Interested Party

As you’re searching for a rental property that you could eventually own, keep in mind that you do have the ability to present an offer to any interested party. For example, let’s say you find a rental property that has everything you want, but it’s not currently listed as a rent-to-own home. Consult with your real estate agent to come up with an offer that you can present to the property owner – the worst thing that could happen is they’ll say no.

The same goes for other properties that might not explicitly be listed as rent-to-own but have the potential to become a rent-to-own property. Making an offer to a property owner could get you into a rent-to-own agreement that positively benefits both you and them.

What To Look For In A Rent-To-Buy Home

Choosing your home is a personal decision with a lot of factors considered before you make your final decision. We’ll go over what you should be looking for in a rent-to-own home next.

A Knowledgeable Landlord

Since a lease purchase agreement is a unique type of contract, it’s important to feel like you’re working with a knowledgeable landlord. The property owner should be well aware of your financial plans regarding the home and be aligned with the lease purchase agreement that is put in place.

Working with an experienced landlord is especially important when the rent-to-own agreement is being finalized as this type of contract has many unique aspects to it compared to a typical rental agreement.

A Home In Good Condition

As with any home purchase, the condition of a home should always be considered before you sign on the dotted line. The last thing you want is to be putting money into a home that isn’t in the best condition just in time for you to become the owner and take full responsibility of the property.

Do your best to really evaluate the property and ask questions to the property owner in order to fully understand the current state of the home as well as any other issues that may have happened in the past.

A Smart Investment Opportunity

While you might not be considering this home as an investment opportunity, it could eventually become a real estate investment over time – especially if you ever want to move out and sell it. It might be worthwhile to ask yourself a couple of questions before you commit to a rent-to-own property:

• Will the value of this property continue to increase?
• Is this neighborhood going to stay popular and safe?
• Could I make money off this property if I sold it in 5 years?
• Could this property act as a rental or investment property in the future?
• Is this property going to cost me a lot of money in upkeep and maintenance once I own it?

Consider these questions as you search for the right rent-to-own property.

The Bottom Line: Find A Rent-To-Own Home That Fits Your Needs

Finding a rent-to-buy home can take time and is a process that shouldn’t be rushed. Working with a real estate agent, searching the real estate market, using a rent-to-own program and portal and presenting an offer to someone are all ways you can go about finding a rent-to-own home. Keep in mind that this house should be able to work for you in the long run since you’ll eventually be the full owner of the home.

Are you ready to become a homeowner? Start the home buying process today.