What is a Rent-to-Own?

What is Rent-to-Own?

Rent-to-own (RTO) is a term used to acquire assets over a long period of time without taking on debt. In regard to home rentals, (lease to own) a tenant will have a right to purchase the home at the end of the term for a predetermined price.

Usually, a percentage of the tenant’s monthly rent will go towards their down payment if they wish to purchase the property at a later date.

Pros for Tenants:

1. Can build equity without taking on debt
2. Can take the time to build back up their credit
3. A potential to make more money if  appreciation on home is  greater than originally anticipated. Example, within two years they have the right to buy the property at an amount you negotiated when they signed the lease. In some cases, they could make out because the house is worth much more than originally thought

Cons for Tenants:

1. Tenants may end up paying more per month for rent and still not be able to buy the home within the predetermined time period because they can’t get a mortgage, they may find a new job elsewhere, etc.

Pros for Owners:

1. The tenant will take better care of property because they have ownership in it
2. In many cases, (around 70% of the time) after the two year period, the tenant still can’t get a mortgage and may not buy the home.
3. Owners can get much more per month because a percentage of the payments will go towards their down payment. If they elect not to buy the home, the owner keeps all of the extra rent.

Cons for Owners:

1. If home appreciates greater than anticipated, the owner loses out. The owner must forecast what they think the home will be worth in 2 years or the predetermined time frame. (Usually 2 years)