Rent-to-own is a non-traditional step into homeownership that not many people completely understand. Is it renting? Is it owning? How does it all work, and more importantly, do you need a real estate agent for rent-to-own homes? Read on to learn more about this process and better serve your clients looking for ways to afford homeownership.

What is ‘Rent to Own’?
Rent to own is a real estate strategy that allows renters to live in a rented home while paying down the sales price of the home. A portion of the rent goes towards paying down the sales price, and then at the end of the lease, the renter has the option to purchase the home. This is a common strategy for sellers who are struggling to sell their homes in a slow market and makes it easy for renters to step into homeownership at a pace that they can afford. 

Pros of Rent to Own
For renters, there are many benefits to a rent-to-own strategy. First, it allows them to work towards homeownership while they save money, increase their income, or work on their credit. It also allows buyers to lock in a sale price and not worry about prices changing when the market shifts. Rent to own is also a great option for renters who think they want to settle down in a particular home or neighborhood, but want a chance to live in it first to be sure.

There are many benefits for sellers, too. Offering a rent-to-own option may attract more renters, especially during a time when the market is slow. Also, people who plan on buying the home they’re renting typically take better care of it than renters who know they’re leaving when the lease is over. This is valuable peace of mind for sellers who are worried about the wear and tear that happens to a house when it is rented. 

Cons of Rent to Own
Of course, the rent-to-own strategy does have a few drawbacks. For sellers, the option for the buyer to back out and not buy the home can be a scary thought. If the renters do change their minds, sellers are back to square one when it comes to advertising and listing their property for sale. Most sellers use the down payment they get from the buyer to put a down payment on their next property. In a rent-to-own situation, the premium is added to the monthly rent in smaller amounts over a long period of time, so sellers don’t get the big lump sum. If the value of the home goes up, landlords are locked into the agreed-upon price in their rent-to-own agreement, which could mean they lose money.

For renters, the money that goes towards lowering the sale price of the home is nonrefundable. This means if they change their mind about buying the home, they don’t get that extra money back. There are also horror stories of landlords pocketing all of the money, not paying the mortgage, and letting the home fall into foreclosure. When this happens, the renters have zero control over what happens to the property. This is rare, but it’s a risk some renters are willing to take. Some landlords will include a clause in the rent-to-own agreement that if you’re late paying rent, you could forfeit the right to purchase the home. Renters should read the agreement very carefully or have their agent help them understand the terms of the agreement. 

A Real Estate Agent’s Role
So if sellers are selling their home to the people who are currently renting it, and renters are buying a home from their current landlords, where does a real estate agent fit in? Do you need a real estate agent for rent-to-own homes? While many renters come to a rent-to-own agreement with the current landlords, others are looking for a home that will give them this option. This is something a real estate agent can help with. 

As they help clients find their next home, they can filter their search by sellers who are willing to discuss a rent-to-own agreement in the future. A real estate agent can also help put together a rent-to-own contract, and walk both parties through the details and fine print that comes with it. 

A real estate agent also comes with an extensive network of industry professionals, including appraisers and home inspectors. Even though this is not a traditional home sale, it’s still recommended that the buyers have an appraisal and home inspection done before agreeing to purchase the home. A real estate agent can connect buyers with trusted professionals to perform these vital steps. 

Final Thoughts
Rent to own can be complicated for new homeowners, and they may look to you, as their agent, to help them navigate this unconventional step into homeownership. The more you know about how it impacts the homeowner and the buyer, the better you can serve your clients. 

Top-performing agents invest in continued education to help them understand the ins and outs of real estate strategies just like this one. Check out Mbition’s list of online courses and classes geared to help real estate professionals get the solutions they need, no matter where they are in their professional journey.