If you want to invest in a rental property, your best option may be to rent before you own. These property investments represent a favorable alternative in today’s real estate market. By investing in this type of property, you and the seller benefit.
Nevertheless, you still need to know what you’re doing, as this type of real estate investment can be confusing. That’s why you should work with a property management company. Doing so will help you understand all the intricacies of committing to the transaction.
What Does “Rent to Own” Mean?
You first need to define what rent to own means to make this happen. By partnering with a property management company, you can get a fuller understanding of the housing market in your area and the proper execution of this type of transaction.
When you rent a property to own it, it means that you are given the time and opportunity to buy the house eventually. Therefore, an option premium is introduced in the agreement. This option allows you to buy the home at a specific time in the future.
Sellers offer the premium at 5% of the home’s market price. The contract will also contain the conditions of the rental/sales contract, the “premium” payments owed monthly, and the lease term. The house is listed and included in the contract. This is the agreed price, regardless of the home’s actual worth.
The Steps for Acquiring a Rental Property that You Plan to Buy
You should rent a property to own it if you feel you can strengthen your financial position in the future. This type of real estate transaction features the following steps:
- You and the seller negotiate a contract.
- You sign an agreement that contains what you have agreed.
- You, the buyer, pays the option premium,
- You make the monthly lease payments per the agreement’s terms.
- When the agreement comes to an end, you have the right, as the buyer, to buy the home for the previously agreed sales price.
You may experience either benefits or drawbacks from this type of transaction, depending on what you wish to do with your money and how you want to invest it. You may wonder if this type of investment is worth it.
Why This Contract May Benefit a Seller
A renter who plans to own a property is more likely to take better care of it. This attitude naturally benefits the seller.
However, if a renter (and possible buyer) acquires this attitude, they may also be more selective regarding maintenance. That is why a seller or renter of real estate must rely on the services of a property management company. A professional firm that can stay on top of everything related to a property.
A seller can also set their sales price, or monthly rental premiums, at a higher amount, which naturally bodes well for them financially. Because the seller is taking a risk on the renter to buy the property, they have this latitude.
A Win-Win Situation
Renting to own can provide a win-win situation for both buyer and seller. If you feel your financial position will be stronger in the future and you want to own a property, this type of transaction may be designed for you.
