The Advantages and Disadvantages of a 'Rent-to-Own' Home Sale

When we received our first offer for a rent-to-own contract on our house, it was an option we had not yet considered in our home sale process. Though we ended up refusing the offer (and several similar subsequent offers), it brought to our attention the more prevalent "rent-to-own" alternative in our current real estate market.

While it turned out that this option wasn't for us, during our deliberations, we could definitely see some bright spots for sellers in such a deal but at the same time, some disadvantages as well.

ADVANTAGES

Someone Who Cares

Rather than just having a warm body in your home by way of a renter, with someone who is renting-to-own or renting with an intent to purchase, you may have someone who will take more of an interest in your home. This can leave you with peace of mind and hopefully provide you with an occupant who actually cares about the upkeep and well-being of your property.

A Property Manager

With a renter who cares may come a few of the benefits of a property manager but without the costs. Heck, the rent-to-own tenant will even be paying you. If this person knows that your property will one day be their property, they will hopefully be more inclined to take an ownership role while they are there. In turn, your renter may be less likely to call you for problems, and more likely to fix issues on his own -- especially if the renter is allowed to fix them the way he wants.

A Vested Interest

A renter might also have more of an interest in sticking around if part of the monthly rent check goes toward earnest money. Knowing that if they decide to back out of the deal that they could be losing a sizeable chunk of cash in the process, it might give a renter a more vested interest in upholding their contractual obligations.

Moving On

With someone who hopefully cares as much about the property as you inhabiting your home, there may be a chance to finally get on with your life. As most of us who have sold a home know, it's often hard to move on with your life when a home is still on the market, hanging around your neck light a noose that is tightening with each passing day. A rent-to-own or rent with intent to buy opportunity could allow you to move on whether for work, financial or personal reasons with more confidence and security than just having an ordinary renter in your home.

DISADVANTAGES

It's Harder to Back Out

One of the downsides to doing a rent-to-own or rent with the intent to buy type deal is that if you decide you want to take your property off market for some reason, it can be harder to do so. With renters, you typically have a rental agreement for a set period of time, after which, the lease will be up for renegotiation. However, if you're contractually obligated to sell after renting for a certain period, your options might be more limited if at that point you decide that it isn't the right time to sell after all.

Your Buyer Might Back Out

Just because you've got a written contract for a buyer to take over possession of the house at a pre-set time, it doesn't necessarily mean that this will indeed occur. As with most real estate deals, there is only so much a contract can enforce, and while that contract might be legally binding, enforcing it could end up being more costly and time consuming than it's worth.

Lost Time

In a situation in which your buyer backs out, you could be left "holding the bag" so to speak. Not only could your renter have increased the wear and tear upon your home during the time he was there, but you may have lost out upon valuable time and opportunities to sell to others; and you're once again left with the responsibility of a home and finding a new buyer for that home.

Your Buyer Might Ask for More

After getting to know your home, its quirks, and its ins and outs, your renter's plans to become an owner might change. He may realize that the house as he saw it before he moved in isn't the house he thought it would be and want a better deal. Having time to spend time there might change his mind about become a homeowner or at least a homeowner in your house, and the money he might lose by backing out of the deal might pale in comparison to what he might lose should he choose to honor it. This could leave him asking for more items to be fixed or replaced or even a lower sales price and put you as the seller in a tough position.

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Disclaimer:

The author is not a licensed financial, legal or real estate professional. The information provided in this article is for informational purposes only and does not constitute legal, real estate or financial advice. For such advice, readers should consult a licensed financial advisor, lawyer or realtor. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.