A rent-to-own is a very specialized type of real estate agreement. For people who cannot obtain conventional financing, in the form of a mortgage, a rent-to-own agreement may be the only option to own a home. With any rent-to-own agreement, it is important that all the parties have their own competent real estate lawyers. Basically, a rent to own agreement works like this:
1. An agreed upon rent is paid monthly, by the buyer. A portion of this rent is income for the seller and a portion is put towards a down payment if the option to purchase is exercised by the buyers.
2. The rent-to-own agreement usually has an expiry of between 2 to 5 years.
3. If the option to purchase is not exercised by the buyers, before the expiry date, the seller keeps all of the rent paid to that point and the seller can then sell the property to anybody.
4. During the period of the agreement, the seller cannot sell the property to anybody else.
5. The seller remains on title for the duration of the agreement, until the property is purchased.
6. The purchase price may be agreed upon at the commencement of the agreement or both parties may agree upon a purchase price based on the market value when the option to purchase is exercised.
The disadvantage for the buyer is that the buyer will usually end up paying more for the property then if the buyer were to purchase the property by conventional means, from the outset. However, the advantage for the buyer is that he/she/they are able to eventually own their own home. The disadvantage for the seller is that if another buyer offers to purchase the property for more money, after the rent-to-own agreement is signed, the seller will not be able to sell the property. The advantage for the seller is that the seller is able to secure a possible sale of the property, in a challenging real estate market, where a conventional sale may be difficult or impossible for the purchase price desired. For more detailed information about a rent-to-own agreements, please consult a competent real estate lawyer.