Rent-to-own property: Is this a good option?

Rent-to-own properties are an option that people often ignore.

Hi, this is Michael Dominguez with the Doors to Wealth Real Estate Group. I was asked another question, “What’s the best way to rent-to-own a property?” First of all, I’d like to explain what rent-to-own really is. A rent-to-own is when you are a tenant and you create a contract in place where it’s been predetermined what the final purchase price is going to be. You’re paying the owner of this property not only rent while you’re essentially still the tenant but also you’re providing them with an additional amount of money that’s going toward the down payment. Over the course of those 2-3 years, which is the typical length of time, the tenant has the ability to improve their credit. Then they’ll have somewhere between 5-10% to put down on a property and then be able to essentially buy that home and own their property in three years. It is a bit of a forced savings plan.

Make sure that all of your bases are covered.

My advice to anyone is to understand that there is a number of very reputable companies out there that you can use towards rent-to-own. I would absolutely tell you to do your research and determine the better ones versus the others. There are some unscrupulous people out there that may take advantage and are looking to get the person’s down payment money and not be releasing the house. If you fail to meet certain criteria, that, in fact, could happen. If you follow everything by the letter and law and you’re working with a reputable company, that’s absolutely something you can do. The price, as I said, is very predetermined at the outside of the contract.

What growth can a rent-to-own property bring?

Depending on the market, you’ll see somewhere between a 3% to 5% appreciation on this property. Let’s say it’s worth 300,000 right now in certain markets. Adding an extra 3% or 4% annually, the actual purchase price in three years might be $330,000 or so. That’s okay, because the market has gone up by the same amount as well. As I said, start doing your research, find a reputable company. Then, start to negotiate with them and see if you can get into a house because the alternative is that you continue to rent for another three years and you’re likely going to be in the same financial position you are right now. This gets you into real estate and it’s a forced savings program. Thank you.