Rent to own is a type of agreement in which a tenant rents a property with the option to purchase it at a later date, usually after a set period of time. The tenant typically pays a higher monthly rent, part of which goes towards a down payment on the property. The tenant may also be required to pay a one-time option fee, which gives them the right to purchase the property. If the tenant decides not to purchase the property, they will typically lose the option fee. If they do decide to buy, they will use the money they have saved towards the down payment. The purchase price is agreed upon in advance and is usually higher than the current market value to compensate the seller for the option.
Benefits of Rent To Own
1. Building equity: Each monthly rent payment may include a portion that is applied towards the purchase price of the property, which can help the tenant build equity in the property over time.
2. Time to save for a down payment: Rent to own agreements can provide the tenant with additional time to save for a down payment, which can make it easier to secure financing to purchase the property.
3. Testing the waters: Rent to own agreements can provide the tenant with the opportunity to test out the property and the neighborhood to ensure it is the right fit before making a long-term commitment.
4. Improving credit: If the tenant makes timely rent payments, this can help to improve their credit score, making it easier to obtain financing to purchase the property in the future.
5. Flexibility: Rent to own agreements offer more flexibility than traditional rental agreements, as they allow the tenant to decide if they want to purchase the property at the end of the agreement, without being committed to doing so.
6. Potential price appreciation: If the property appreciates in value over time, the tenant may be able to purchase the property for less than its market value, creating a potential for financial gain.
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