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Should I enter into a rent-to-own real estate transaction?

| Nov 13, 2015 | Real Estate Transactions |

Rarely these days are real estate transactions as simple as one buyer turns over the full purchase price for a piece of property to a seller and the deal is done. Often, in Arizona and elsewhere, real estate transactions have a greater level of complexity and could involve lenders or short sales or even the possibility of a rent-to-own arrangement.

In a rent-to-own purchase agreement, the terms, like in other real estate transactions, are negotiable. The renting party pays rent to the owning party with the goal of eventually owning the property. The arrangement may involve the property owner continuing to pay real estate taxes, property insurance and mortgage payments, as well as handling maintenance and repairs. In turn, the renter pays a fair market rent to the property owner.

As with a traditional rental arrangement, the prospective buyer might sign a rental agreement with explicit terms. The rental agreement may specify what portion of the rent will be credited by the seller to the down payment. There may be language that clarifies the tenant’s option to buy the home, as well as what happens if the tenant does not opt to become a buyer of the property.

There are pros and cons for both the potential buyer and seller in a rent-to-own transaction. A potential buyer has the option to take possession of the home before he or she actually owns it outright; however, they may forfeit money, whether in rent payments or option payments, if the closing falls through. A seller may be able to generate income when he or she would not otherwise be able to, but if the transaction falls through, they will have to start over with a new tenant and transaction.

A homeowner or a prospective homeowner who wishes to enter into a rent-to-own real estate transaction may wish to consult with legal counsel to ensure that his or her rights are protected. This could help ensure he or she is making informed decisions in the matter.

Source: azcentral.com, “Rent-to-own home deals can benefit both parties,” Richard Montgomery, Oct. 2, 2015

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