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Rental agreementThis is the next post in my series discussing what Dayton area home buyers and sellers need to consider before entering into a rent to own type contract, as opposed to a more traditional home sale. I began this series because on the surface, a rent to own contract may seem very attractive. For a buyer, it does not require applying for a mortgage with a lender, one’s credit score may not be pulled, they are able to ‘test out’ the home prior to committing to the purchase, and a large down payment is not required. However, rent to own agreements are complex legal contracts, and there are many ways a buyer may lose out on the home they wish to purchase, if their contract is not written in a way that protects them.

When a buyer enters into a Rent to Own contract, they are entering into a lease agreement with an option to purchase the home at a later date. They are not under any obligation to purchase the home, should their future plans change. Often, there is both a large, upfront cost (generally between 1-5% of the agreed purchase price) that is a fee for the purchase option. Generally, the monthly payments of the home are higher than the going market rental rate. A portion of the monthly ‘rent’ should be put towards paying down the balance of the home. If the tenant decides not to ultimately purchase the home, all fees and additional monies paid towards the home purchase is not reimbursed.

If a home buyer is considering a Rent to Own property, they need to keep in mind that not all contracts are equal. Generally, the home owner has decided to handle the sale and management of their home privately- they are not working with a Realtor, and may or may not be using a contract drafted by an attorney. Issues that are of the utmost importance for a potential buyer to be aware of include safeguarding themselves in the event that the owner stops paying property taxes, specifying who is responsible for what repair and maintenance costs, clarifying under what circumstances the buyer could be evicted from the property, and agreeing up to what date the buyer’s option to purchase remains good.

These issues are important because a future buyer may invest money into improving their home, which they intend to buy in the future, only to find out later that they have lost their investment due to a technicality, or an issue that was no fault of their own. Having a strong contract, that is reviewed by a lawyer, can ensure that a tenant will not lose money they have invested, or be forced to leave a home they were planning on spending their life in.

It is important for potential buyers to understand that Rent to Own options are not a cheap or inexpensive choice. Buyers are paying a premium for their lease option, that is both more expensive than a regular rental lease, and more expensive in the long run than a regular mortgage. Individuals who choose a Rent to Own contract often do so because they believe they are not able to qualify for a mortgage, or are hesitant to make the full commitment necessary to take out a loan. Prior to deciding on a Rent to Own, a potential buyer may wish to speak with a loan counselor or financial advisor, to ensure they are making a sound long term investment choice. There are many times when a buyer does not realize that they can qualify for a loan, or can clean their credit up faster than they thought possible.

As a Dayton area Realtor, I am happy to sit down with potential buyers and sellers alike, who wish to compare the benefits of a rent to own option with a more traditional real estate sale. I also service the areas of Beavercreek, Centerville, Cincinnati, Clayton, Englewood, Oakwood, Fairborn, Harrison Township, Huber Heights, Kettering, Miami Township, Miamisburg, Riverside, Springboro, Trotwood, Vandalia, Washington Township, West Carrollton, and Xenia.