What's Rent-To-Own?

August 02, 2022
2 mins

When we think of housing, what most often comes to mind are the typical, and seemingly only, options available: renting or owning a home. 

In actuality though, there is a rare third option, and it’s called rent-to-own. 

Rent-to-own 101

  • The contract: Rent-to-own is essentially a two part contract—it’s a standard rental agreement with the option to buy the home before the lease expires. There are other variations too, like lease-option which gives you the option to purchase after the lease is up, and lease-purchase which requires you to buy when the lease comes due.
  • The money: You’ll pay your typical rent throughout the duration of the lease, but you’ll also pay a fee upfront for the option to buy, and it’s usually between 1-5% of the purchase price. In most cases, a portion of your rent will be allocated towards your potential down payment every month, and if so the amount will depend on the agreement between you and the landlord.
  • Risks: That one-time payment for the option to buy is a big loss if you don’t purchase, and leasing a property while also being required to maintain it in some instances isn’t so great either if you decide not to buy. Lease-purchase agreements can be their own nightmare to get out of in the event you can’t follow through as well.
  • Benefits: The main benefit of rent-to-own is that it gives the tenant the time they might need to get their finances together while also presenting them with the opportunity to become a homeowner eventually. The home may also appreciate in value between the time you sign the contract and when you eventually purchase it, starting you off with some equity.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

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