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Pros and Cons of Rent-to-Own Housing

By Teri Dormer

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If you’ve outgrown your apartment and know you need a bigger (potentially more permanent space), but aren’t ready to put down a deposit or formally commit to buying your own home, rent-to-own housing may seem the perfect solution. 

But is it?

The difference between rent-to-own vs outright buying may already seem spelled out for you, but the truth is a bit more complicated.

Let’s take a closer look at the full meaning of “rent-to-own,” and whether or not this living solution is right for your family. 

Rent-to-Own Meaning 

As the name suggests, rent-to-own housing involves the process of renting a home or condo and potentially being afforded the opportunity to purchase the property after a specified amount of time. 

It’s very important to understand that formal sale of the home is not guaranteed in every rent-to-own agreement.

Both the buyer and seller must agree to fixed terms regarding the length of the lease and the point in time at which the property might become available for purchase.  

In many rent-to-own scenarios, the landlord or property owner agree to apply some or all of the rent paid on the home towards the total list price at the time of sale. 

Rent-to-Own Benefits 

Rent-to-own properties may not be the perfect arrangement for every family, but there are a number of benefits to rent-to-own vs buying that might apply to you. 

1. Less Emphasis on Credit

If you have bad credit – or no credit at all – rent-to-own housing provides an opportunity for families to move into the home they want sooner and work towards repairing their credit score prior to formally purchasing the home. 

2. Try Before You Buy 

Buyers remorse is never any fun, but it can be downright terrifying when you’re buying a home. 

In what is effectively the most expensive purchase many people will ever make in their lives, the feeling of regretting the house you picked can be devastating.

With rent-to-own vs buying, you get the chance to feel out the property, live in the neighborhood, and make a truly informed decision before pulling the trigger on a new home. 

3. Less Time Moving

Let’s face it – moving is kind of a drag. As excited as you might be to secure a house of your own, the time and energy (not to mention money) it takes to move from home to home can be exhausting.

Rent-to-own properties eliminate the move in the middle between a rental home and your final purchase. It’s a win for everyone.

Rent-to-Own Housing Downside

As with almost every major purchasing decision, there’s an upside and a downside with rent-to-own housing. Here are a few major cons to rent-to-own vs buying you’ll want to be aware of. 

1. Nothing is Guaranteed 

As discussed in the rent-to-own meaning, there’s nothing guaranteed about the rent-to-own process.

Just because it sounds cut-and-dry doesn’t mean it will be. Both the buyer and seller, ultimately, have to agree to the final terms of the transaction. 

2. A Pre-Negotiated Price 

When entering into an arrangement for a rent-to-own property, the final list sale price for the home is determined at the beginning of the renting process.

If the market value for the home continues to rise, this works out for the buyer. In contrast, if the property value declines, you could find yourself overpaying for a depreciated property.  

3. Lack of Ownership 

As the name suggests, there’s a rental period involved in rent-to-own housing. During this time (which could last for years), you may be limited in terms of your ability to renovate or remodel the property to your personal preference.

Until the seller has formally agreed to part with the home, you’re no more in control of this property than you might have been in an apartment. 

Rent-to-Own vs Buying 

As the saying goes, if something seems too good to be true, it usually is. While that isn’t always the case for rent-to-own homes, it’s important to consider every aspect of the process before signing a contract. 

On the surface, it may seem like a good solution for moving into a larger property and, ultimately, buying it for yourself, but it doesn’t always work out that way. Some buyers may get burnt in the process.

Make sure to consider the fine details in any housing contract before signing and think about the potential pitfalls in addition to the upside!

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