Something that we used to see a lot in Dallas was rent-to-own homes. We haven’t seen these agreements very often in recent years, but we get a call about them every now and then.
Today, we are going to examine rent-to-own agreements, who they benefit, and alternative options.
What Are rent to own agreements?
Homes can be very expensive. Because of this, most home buyers need a mortgage to afford to buy a house. However, for some people with low credit scores mortgages can be difficult to acquire.
In a situation where getting a mortgage isn’t an option, a rent-to-own agreement may be possible.
A rent-to-own agreement allows an interested buyer to rent the house for a period of time, with an option for them to buy the house before the lease expires. These agreements typically include the standard lease agreement and an option to buy the property.
How do they work?
Before I get too far into this, I want to say that there are many ways to structure a rent-to-own agreement. I can speak generally and say how they usually work, but the truth is there are a lot of specific ways that the agreement can work.
Generally, in a rent-to-own agreement, the monthly rent goes towards the down payment on the house. Essentially, if you’re renting to own, you’re slowly paying the down payment to the owner of the house until you can purchase the house.
Of course, with this structure, the price of the house needs to be agreed upon before the buyer can start renting the property. This can pose some great benefits to the buyer, especially since houses appreciate in value over time. By the time the lease is up, the house could be worth more than what the buyer is paying.
There is also usually some clause in the agreement that says the buyer does not have to purchase the house at the end of the lease. This means that if the market crashes and the home loses value over time, the buyer is protected.
As you can see, rent-to-own agreements heavily favor the buyers over the sellers.
what's in it for sellers?
So why would a seller agree to a rent-to-own situation? There are a few reasons.
Sometimes, in an extremely buyer-friendly market, there may not be many options. Their best offer might be the rent-to-own agreement. This can happen, especially if the sellers are really in a pinch and need to sell their house for some reason.
Another reason that sellers may want to enter a rent-to-own agreement is they know that the tenant is going to take care of the house because eventually, they want to move into it. If someone is about to own the house, they’re more likely to take care of it and they may even invest in it. This, combined with the fact that they know the buyer is very interested, can give the seller peace of mind.
why are they uncommon in dallas?
If you’re looking for a rent-to-own deal, you probably won’t find many in Dallas. This is because Dallas is such a seller-friendly market right now. As I mentioned, rent-to-own agreements are very buyer-friendly, so you won’t find many in seller-friendly markets. This makes sense because, in seller-friendly markets, buyers don’t have the negotiating power to make agreements that favor themselves over the sellers.
Even though Dallas has recently seen a major shift in interest rates, it is still a seller-friendly market. We’re moving closer to a balanced market which could eventually turn to favor buyers, but we are not quite there yet.
What's another option?
There are companies out there that essentially act as a middleman in a rent-to-own agreement. The company will buy the house from the seller and give the buyer a year to buy it from them. If you’re interested in a program like this, let us know and we can help you out.
This can work really well for people who are moving to Texas but don’t have a job yet. It allows them to make smaller payments while also giving them stability and peace of mind about where they will live, once they do have their job and can afford to buy the house.
want to make a rent-to-own deal?
If you are interested in making one of these agreements, I would highly recommend working with a realtor and having them inspect the property because you certainly don’t want to overpay in one of these situations.
I would also recommend finding an attorney to look over the contract to make sure it’s fair because there is no standard rent to own contract in the industry.
If you would like to buy or sell a property in the Dallas-Fort Worth area, please call the number on our site. We would love to help you find your dream home.
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