The Pros And Cons Of Rent To Own Real Estate

Rent to own real estate can be an intriguing option when buying a home

, particularly if you've been living in a rental home for a long time and you don't want to leave. A rent to own arrangement has pros and cons for both the seller and the buyer. For one thing, a rent to own contract can be risky for the seller. The buyer might want to rent to own because of a high income to debt ratio, a poor credit history or income problems. If the buyer cannot make the payments, the seller still is responsible for the debt, and this potential liability makes the arrangement riskier for the seller.

A seller does have some advantages with setting up this kind of contract. They are able to make sure that someone is in the rental who will be there a long time, and you can actually charge extra to cover some of the expenses you incur by covering the mortgage. You also don't have to worry as much about tenants who only stay for a short period of time, and all the extra hassles with trying to re-rent the apartment. People who engage in a rent to own contract as a buyer are often willing to put some sweat equity into the home, so this may cut down on the amount of expenses you have to pay into the property.

Pros and cons also exist for buyers with rent to own contracts. They might be required to pay higher monthly payments, and there might be a high balloon payment payable at the end of the contract. Just like any other written contract, the terms of a rent to own contract are binding on the buyer, and buyers are locked into their homes for a long time. A rent to own buyer may also be given the responsibility of making home repairs, even though these would normally be done by the landlord. A buyer might also be responsible for the rent to own home's ongoing maintenance.

Despite these disadvantages, a rent to own contract can be an exciting way to buy a home for people who have poor credit. There is much less chance of being turned down by a mortgage company, and the closing costs and real estate commissions are minimal. There might be some credit checks, but a seller doesn't need to worry as much about any debt problems the buyer might have. With this kind of contract, the seller and buyer normally already have a working relationship because they've known each other for some time. A degree of trust has probably already been established between them.

This is one of the most important things about setting up a rent to own contract, trust between the buyer and the seller. Both have responsibilities, and advantages to setting up a rent to own agreement, but these agreements have to have all the cards on the table, and it should always be looked over by an attorney, just to make sure that everything is legal. Homeowner's insurance should be a shared responsibility, as well as repairs that may be required down the road.

by: Karen Lissack

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