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Chapter 3: The Pros and Cons of Rent to Own Homes for Sellers

In the previous chapter, the pros and cons of rent to own homes for homebuyers were discussed. While this is important, potential buyers and sellers should also consider the pros and cons that the lease option offers sellers. Sellers considering this option need to consider both the pros and cons before deciding to go this route. Even prospective homebuyers can benefit from understanding the pros and cons for sellers, since this gives buyers a good picture of what sellers will be thinking.

When closing a deal on rent to own homes, buyers are required to pay an option fee to the seller, which will not be refunded.

The Pros of Renting to Own your Home

Pro #1 – Reduce Risk with the Non-Refundable Option Fee

Sellers enjoy a reduction in their risk by using the non-refundable option fee. When closing a deal on rent to own homes, buyers are required to pay an option fee to the seller, which will not be refunded. This gives sellers a sense of security when choosing this option, since the buyer can walk away from the deal. In most cases, the rent amount paid by the buyer is not refunded when the buyer defaults on the agreement, which also helps to protect the seller, reducing their risk.

Pro #2 – No Commission to Pay

When sellers choose to sell using the lease option, they avoid paying commission to a real estate agent. The commission on a home can total thousands of dollars, but sellers save this money when they sell on a rent to own basis. Along with saving on the cost of commission, sellers usually find a good buyer quickly, since many buyers are attracted by rent to own homes.

Pro #3 – Attract Quality Tenants

Sellers benefit from the high quality of tenants interested in rent to own homes. Most prospective homebuyers that choose this option have a vested in the home and they will treat it as if they own the home. Since tenants already feel like homeowners, they usually care for the home carefully, allowing sellers to enjoy great tenants. Common tenant problems are avoided in most cases when the buyer is planning to purchase the home.

Pro #4 – Command Good Sales Prices in a Tough Market

The current market is considered a buyer’s market, making it tough for sellers to command good sales prices right now. However, when selling rent to own homes, most buyers are attracted to the home because of the excellent financial terms being offered. Homebuyers will enjoy getting a good value when they finally purchase the home and they have time to get their finances and credit in order when choosing this route. All the benefits for homebuyers allow sellers to command great prices, even though they are dealing with a tough market.

Pro #5 – Avoid Vacancies

Vacancies pose a big problem for many sellers working to sell their home in a market saturated with homes for sale. Rent to own homes offer a solution to this problem, helping sellers avoid dealing with long vacancies. Most sellers find that once they advertise the home as a lease option home, they are overwhelmed with potential homebuyers. This allows them to quickly choose a homebuyer, negotiate the terms and get the contract underway. Once a contract is signed, buyers can move right in and the seller avoids letting the home set vacant for months while they try to sell it.

Pro #6 – Continued Tax Benefits

As long as the seller possesses the deed to the home, they continue to enjoy tax benefits. The interest paid on the home mortgage is tax deductible and sellers can continue to deduct it on their taxes until the homebuyer makes the final purchase and the deed is transferred.

Pro #7 – More Prospects

Choosing the lease option when selling a home allows buyers to enjoy more prospects for the property. Instead of marketing the home to traditional buyers, rent to own homes are available to non-traditional buyers and renters. A high percentage of the potential homebuyers who want to buy real estate are unable or unready to get the financing they need right away, meaning that there is a huge market for rent to own homes. More prospects allow sellers to command better prices and get someone in the home faster.

The Cons of Renting to Own your Home

Con #1 – The Renter/Buyer Could Opt Out

Sellers must also remember that the renter/buyer has the potential to opt out of buying the home at the end of the lease period. If a homebuyer opts out and decides not to buy the home, this may pose a problem for the seller, since they must put the home on the market once again. Sellers should consider this carefully before deciding to add their property to the list of available rent to own homes.

Con #2 – The Potential for Less Profit

Choosing the lease option may potentially cause the seller to bring in less profit on the home than they would when selling it another way. Since the price is locked in at the beginning of the lease period, home prices could go up over the next couple of years. This definitely benefits the homebuyers, allowing them to enjoy a great deal, but sellers may miss a higher profit.

At a Glance

  • A rent to own homes contract allows the seller of the home good stream of income;
  • Sellers can continue enjoying tax benefits with the lease option;
  • The option fee helps reduce the risk for sellers;
  • Even in a tough market, sellers can command a good price on the home;
  • More prospects are available for rent to own homes;
  • Rent to own homes attract quality tenants;
  • Sellers may potentially miss out on a higher profit;
  • Homebuyers can walk away from rent to own homes, which may cause problems for sellers.

Sellers should consider these factors carefully before deciding to add their property to the list of available rent to own homes.

Next: Rent-to-own homes: Frequently-asked questions