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The Pros and Cons of Rent to Own in Boise

Source: http://boiserealestateinfo.net
Publish Date: 2/25/2009

Today there are too few rentals to keep up with a sudden surge in demand as people lose their homes or cannot get mortgage loans to buy and are forced to rent instead. But homeowners are suffering from a lack of buyers, sluggish sales, and deteriorating prices. Rental prices are going up but sales and credit are both shrinking, making rent-to-own arrangements more attractive for both landlords and tenants.

Here’s how it works, with an explanation of the pros and cons for both parties.

Tenants typically negotiate to have their monthly rent applied to the purchase or down payment. That gives them an automatic way to pay rent while simultaneously investing in a future home, so that they are not just paying rent money that could be saved to buy a house.
Landlords get the benefit of a tenant who will usually take better care of the property because it may some day be their own. They also have a built-in way to attract a future buyer – with the price already agreed upon in the rent-to-own contract. They get the tenant invested in the transaction from the start, improving the chances that it will later culminate in an actual sale.

When owner financing is an option, it gives the seller an extra way to entice buyers, and when offering financing a seller can typically charge higher rates than banks do. They can also schedule shorter loan payback periods of 10-15 years followed by a balloon payment.
Owner financing relieves buyers of many of the burdens placed on them by tighter credit markets and more stringent lender requirements such as large cash down payments. If the renter is making timely monthly payments that go toward the purchase, the seller tends to be more lenient regarding such things as credit score or past financial problems.
These contracts usually give the tenant the first right of refusal, which conveys to them the right to go through with the purchase of the property before other buyers have a chance to make offers. But it should be written into the contract in such as way that it also gives the tenant the option to walk away without penalties if they change their mind for some reason.
In that case the monthly payments that had been applied to the purchase are retained by the landlord as standard rent. Other procedures regarding security deposits and refunds remain the same as they are in any standard rental contract.

The main downside for a landlord is that the sale will not go through, but in that case they still have a successful rental arrangement to help tide them over until they do sell. For the tenant there is usually no downside to a rent-to-own arrangement, as long as the contract is written in a way that gives them an option to either buy or to walk away in the end. As with any legal agreement, the contract should be reviewed by a qualified real estate attorney, and carefully executed to spell out the rights and obligations of both the tenant and landlord or prospective buyer/seller.

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