Investing in rental property

Things you need to know about rent-to-own houses

In this hard up economy, it can be very difficult to purchase your own house. Even if you’re not required to pay the full price, large down payments can still be a big issue for many ordinary and employed individuals. It’s a good thing, though, that there are sellers who are willing to rent out their properties and give their tenants the option to own the same at more convenient terms. This makes investing in rental property more possible for common individuals.

Undoubtedly, people would rather purchase their own house if money is not an issue. Instead of renting, these people would hope that their monthly payments are applied as home equity rather than spent as regular household expenses. If you are resourceful enough, you can find property owners or landlords who will be willing to make concessions on your transactions and accept your monthly rental payments to be applied as partial payments for the purchase of the property. This is called a rent-to-own transaction or a lease-option. This scheme of investing in rental property at a more affordable option is for people who cannot make an outright purchase of property.

How does a lease-option or rent-to-own transaction work?

In a rent-to-own transaction, tenants and landlords agree to have the property leased for a specific period of time. This period is anywhere between one to three years. Generally, the tenant will be asked to make a fixed upfront payment and pay a higher monthly rental fee. Certain portion of the rental payment goes to a “fund” that should cover the required down payment for the property at the end of a pre-determined period. On or before the term of the lease is up, tenants have the option to exercise his right to purchase the property at the price agreed upon during the start of the rent-to-own transaction. The accumulated fund that covers the down payment can be applied to the total contract price should the tenant decide to proceed investing in rental property. Generally, this “excess fund” that’s supposed to be applied as down payment is forfeited in favour of the landlord if the tenant decides not to purchase the property at the end of the lease period.

Investing in rental property using the rent-to-own method generally favors the buyers as they can take the time to source out funds that they need to purchase the property without too much pressure. While renting the house, they can uncover certain things about the property that could further justify their decision to buy. In the same way, they could also find certain things about the house that would indicate signs that their initial decision may not be a sound idea at all. This way, they have time to backout from the deal and not waste too much money in the process. Lease-options will also allow potentials buyers not to waste a lot of time and resources securing for loans and mortgages. While it may seem simple to engage in a rent-to-own transaction, it’s still best to engage the services of lawyers or real estate brokers who can give appropriate and educated advice on this subject.

Property owners usually give in to rent-to-own transactions if they find it a little difficult to sell their house. Instead of having it idle for a long time, some deem it wiser to lease out the unit and get regular rental income instead. In an economy when real estate is down and buyers are hard to find, lease-options can prove to be the best decision during the circumstances.

Whether you are on the part of the seller or the property owner who wish to engage in rent-to-own transactions, keep in mind that like in any other real estate transaction, everything should be properly planned and documented. There are documents and agreement forms that are tailored-fit for these types of transactions. You should get hold of these documents and review their standard stipulations so you will understand everything. Investing in rental property using the rent-to-own option can be a good decision, provided you are well aware of all the legal implications involved. It can certainly work for individuals who do their due diligence before parting ways with their hard-earned money.