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How Rent-to-own Homes Work


Risks and Benefits to Sellers

Here are some pros and cons sellers can expect in a rent-to-own contract:

  • If home values are falling, sellers can lock in a higher price at the start of the agreement.
  • Renters who are looking to own generally treat their living space and community better. They're planning for their future, instead of living in a place they'll vacate in a year or so.
  • If a renter does back out at the end of the agreement, the seller still has the option fee and rent premiums as income. However, the seller is back to square one, which may be difficult for some homeowners who just want to be free of their old house.
  • If a new potential buyer comes along who wants to purchase the house for a higher price, the seller is out of luck. He entered into a contract with the renter, and he has to abide by it.
  • Many sellers use the rent they earn to pay the existing mortgage on their old home, which eases their financial burden. If the renter can't make payments, few sellers can afford to pay both their old and new mortgages, which could force them into foreclosure.

Because of the many concerns on each side of the rent-to-own transaction, both buyer and seller should obtain the assistance of a real estate attorney (two different attorneys) so that each party is fully aware of its rights and responsibilities [source: University of Tennessee Law School].

On the next page, we'll look into some alternatives to rent-to-own.