How Does Rent to Own Work in the Year 2020?

The American Dream has always been to buy a house with a white picket fence and raise a family there until we grow old. In today’s world that is not always an option without a high credit score, years of work history, and a sizeable down payment.

Rent to own gives families who may not have enough money for a down payment the option to rent their house for some time until they are ready to buy it. On paper, that sounds amazing; so why are more people not utilizing this strategy?

The truth is, most people selling a home prefer to sell it and forget about it rather than hang onto it for a few years while someone pays on it slowly over time. While rent to own opportunities might be hard to find, if you stumble upon one, there are a few things you need to know.

Related: What is a Good Cap Rate for Rental Properties in 2020?


How Does Rent to Own Work?

The way rent to own works is a landlord and tenant enter into an agreement, stating the landlord has agreed to sell their home to the tenant at a predetermined price at the end of a specific time frame. During this period there is usually a lease agreement, and a portion of the rent goes towards the purchase price of the house each month.

On the side of the tenant, they agree to rent this property for a predetermined amount of time before buying it when the lease expires. During this time they will have continued to pay rent as they usually would and most likely have reduced the final purchase price of the home.

The Different Rent to Own Contracts

With a rent to own situation, there are two different types of contracts you should educate yourself on. The first is a “Lease Agreement with Option to Purchase,” and the other is a “Lease Agreement with Purchase Agreement.” One rent to own contract is more complicated than the other and comes with a bunch of contingencies, so let’s take a more in-depth look.


Lease Agreement with Option to Purchase

This type of lease agreement is the more complicated one, and it requires the tenant to pay something called an option fee, which gives them the right to purchase the property at a later date. This provides the owner with an incentive to agree to the rent to own terms, and it also requires the tenant to have a stake in the deal if they decide to move out and abandon it.

If the landlord agrees to these terms and accepts the option fee, they are legally required to sell the tenant the house at the end of the lease. If the tenant decides they no longer want to purchase the property after agreeing to these terms, they forfeit the option fee.

Option fees are negotiable but usually range between 2-7 percent of the purchase price of the home.

Lease Agreement with Purchase Agreement

This is a much simpler contract where both parties agree on a purchase price for the home, or they agree to determine that at the end of the lease. Either way, the terms are set in writing at the opening of the rent to own agreement.

There is no option fee, and both parties are locked into the agreement right from the start. How the two parties decide on a fixed or future price is entirely dependent on the market. During a rising market, it would benefit the buyer to lock in their purchase price at that time, and the tables would turn during a seller’s market.

Related: House Hacking: Live for Free with an Airbnb Investment Property

Why Choose Rent to Own?

There are a lot of bonuses for rent to own for both parties in the agreement. The benefits are clearly there for the buyer because they do not have to come up with a down payment, they have the chance to repair their credit, and they get to apply a portion of their rent to the purchase price of the home. They also get to do all of this while still having the perks of renting a house.

During a rent to own lease period, the landlord would still be responsible for maintenance and repairs of the home (in most cases). Of course, there are always exceptions to these rules, but this is also something that should be clearly discussed and agreed upon at the time you enter into a rent to own agreement with your landlord.

Rent to own might benefit a homeowner who is having a hard time selling their home during a tough market. These types of opportunities are appealing to many prospective homebuyers that have the dream of owning a home but don’t currently have the resources to do so.

The seller also benefits because any capital gains taxes are mostly deferred when the property is for investment purposes.


Tips for Renting to Own

You might have a lot of time to think about actually purchasing the home when you enter a rent to own agreement, but that doesn’t mean you shouldn’t take it seriously. It’s easy to get involved in something like this without the help of a professional, and you might get yourself into a bad deal because you didn’t have anyone on your side.

It’s a smart choice to have a real estate attorney look through the contract and help you understand your rights. They will also help you negotiate any terms that are not favorable in your direction.

Lastly, when you are renting to own a home, it might seem like a hassle to get an appraisal and inspection at the time of agreement because you are not buying the property at that time, but this is entirely necessary. When you enter into a Lease with Purchase Agreement, you are buying the house at that time because you are legally obligated to buy it at the end of your lease.

At that exact point, you need to make sure you are getting the house for the right price and that the property is structurally sound.

Homeownership is not as far out of reach as it may seem. While rent to own opportunities might be few and far in between, every town across the country is sure to have a few diamonds in the rough. Keep looking, ask questions, and make sure you do your homework.

Related: The 10 Best Real Estate Tech Startups in 2020

10 Best Real Estate Investor Websites in 2020

Thanks to the internet, there are more resources available than ever to help a would-be real estate investor. Tutorials, tools, and guides abound, and if you’re looking to build your nest egg using rental properties or by flipping houses, then you should take advantage of as many of them as you can.

In this article, we’ll be talking about 10 of the best real estate investor websites that can help out every real estate investor; whether you’re a property flipper or hoping to get into Airbnb rentals, these sites can give you a serious edge over the competition.

Related: House Hacking: Live for Free With an Airbnb Investment Property

Zumbly


Sometimes the data on Zillow isn’t quite straight forward, and it’s possible that you could miss some very vital information during your housing hunt. However, with Zumbly you can actually get a value score for every home that you’re considering.

This allows you to determine which homes would make the best long or short term rentals, allowing you to squeeze more profits from your investments and make more money. This tool helps investors to build more wealth and less debt from their real estate holdings. Check out our blog article that tells you all about how you can travel for free with Zumbly.

Related: The Ultimate Beginner’s Guide On How To Find Investment Properties Using Zumbly

Zillow


Zillow is a valuable tool for real estate investors. Not only can you find valuable properties for sale and list your own rentals, but you can also use it to spy on your competitors.

Use Zillow to cruise neighborhoods that you’re interested in and see what the average price for rent is there compared to the value of the home. You can also see the available stock of properties and see at a glance whether the property you’re considering is a good deal or overpriced.

Roofstock


Roofstock is a website created exclusively for the buying and selling of rental properties. While you can, of course, find your own properties, Roofstock has one other neat feature.

It allows you to buy properties site unseen, thanks to their spectacular certification process and guarantees. This allows you to expand your rental ownership to states where you don’t live but have still found valuable investment opportunities.

It’s a potentially valuable tool for those looking to set up Airbnb rentals in hot areas in different parts of the country.

eRent Payment


Need an all-in-one tool that can help you to manage your tenants? eRent Payment provides online payment services, tenant screenings, background, and credit checks, and it allows you to track and respond to maintenance requests too.

A tool like this is very useful if you’re starting to add more properties to your portfolio and you’re having trouble managing all of them. It not only makes things more convenient for your tenants, but it might help your phone to stop ringing off the hook with requests since you can simply tell them to submit a ticket for maintenance.

Related: What is a Good Cap Rate for Rental Properties in 2020?

Bigger Pockets


If you’re new to real estate investing, then you’ll definitely want to visit Bigger Pockets. This website is a huge information hub for real estate investors, and you can get your free landlord education there as well.

There are numerous free articles and podcasts, but it’s also a social network. This allows you to ask questions to experienced real estate investors and landlords in the community to help you get off on the right foot.

Nolo


The legalities of becoming a landlord can be tricky, but Nolo is here to help. If you don’t have the benefit of expensive legal counsel on your side, then you should be checking Nolo to make sure that you’re doing things by the book.

Make sure you know how to craft a lease that’s within the laws of your state and that you know how to navigate things like eviction or pursuing legal actions for damages. Every state is different, and you’ll need to read up on your specific requirements before proceeding.

Craigslist


Looking for the best deals in real estate? Craigslist is a great place to find sellers looking to get out from under a property who will give you a killer deal if you have cash in hand.

It’s available in literally every location worldwide, and it’s a fabulous resource for a budding real estate investor. However, you should be aware that you’ll likely need to sort through a lot of listings to find the gems.

If you’re ready to do the wheeling and dealing that’s required though, you could end up picking up a very nice property for a very attractive price, especially if you’re capable of taking on a fixer-upper.

This Old House


Speaking of fixer-uppers, if you’re a real estate investor on a budget it’s likely that you’ll need to do a lot of the work on your properties yourself to remain profitable. If you need to learn how to be handy in a hurry, then This Old House has you covered.

They offer tutorials, videos, style tips and fixes for tons of problems faced by fixer-upper homes, and you can learn to do much of this yourself to save a bundle on labor costs. Just make sure that you know when to call in the pros, particularly for advanced electrical and plumbing issues.

Propstream


Finding great deals in real estate requires you to find those deals before anyone else. This often means getting those properties before they are even on the market to the general public.

Propstream allows you to utilize data that generates valuable real estate leads so you can get to those buyers long before they even think about listing their properties on the MLS. This allows you to give them a cash offer that could win you a great deal and save them a lot of headaches.

Invest Four More


Interested in learning the ins and outs of house flipping? This blog can help you to understand everything you need to know about the process. The owner has flipped over 120 properties, and he’s willing to share that experience with you, at no charge even!

While he does have some books available on the subject, this is mostly a free resource which you should definitely use if you’re new to investing in real estate.

Related: How Does Rent to Own Work in 2020?

The 10 Best Real Estate Tech Startups in 2020

Real Estate tech startups are ready to shake things up in both residential and commercial real estate ventures, and in this article, we’ll be taking a look at ten of the most innovative companies in the real estate sector.

Zumbly


It’s estimated that Americans move every 5 years. While you could rent your home if you decide to move to another one later, will it really be worth doing? The truth is that sometimes a property is just not worth renting, and if you find that out too late then it can ruin your future plans.

Zumbly wants to help buyers to make better home choices. Their site generates a real-time score which will tell you important information that can help you determine how much your property could be worth both in the long term and the short term.

This allows you to more easily turn your starter home into a profitable Airbnb or long term rental when you decide to upgrade, helping you to build wealth rather than debt.

Related: How to Start an Airbnb Business With 5 Easy Steps Using Zumbly

Rentberry


Finding a place to rent, especially if you’re moving to a new city for work, is beyond infuriating. To help ease this pain, Rentberry has created a platform that helps to streamline negotiations between landlords and potential tenants.

The platform’s transparency has made it popular with renters, and its ease of use has attracted busy landlords struggling to manage their properties. Rentberry has grown past its US offering and now operates internationally, but they still have plenty of room for growth.

Reali


Reali pays their real estate brokers a salary rather than have them work on commission. That means that sellers pay a flat fee, potentially saving themselves $20,000 in fees that would otherwise be lost to a real estate company.

How can they do this? By using technology to allow buyers to perform self-guided tours and other services themselves, freeing up the agent’s time and allowing them to do more for less.

Virtuance


Real Estate agents are expected to be a lot of things, including professional photographers for their listings. Unfortunately, they aren’t, and taking amazing photos is not as easy as it looks. Not to mention the time involved in creating the type of masterpieces that sell houses.

That’s where Virtuance comes in. This company is actually an all-in-one photography company that vets and dispatches professional photographers, does image quality control, uploads the images to the MLS listings and even provides traffic stats for the listings.

Related: 10 Best Real Estate Investor Websites in 2020

Modern Message


Any landlord knows that good tenants are worth their weight in gold. So, how do you retain those tenants? By offering them exceptional experiences with Modern Message.

This platform allows landlords to incentivize their best renters who pay their rent quickly and online, advertise their properties on social media and offer reviews. These renters earn rewards for doing so, and landlords gain valuable interactions.

Thanks to this useful tool, Modern Message was named one of 2017’s fastest growing startups by Inc, and they aren’t done innovating yet. They continue to ink reward deals with other startups, like Wag, which will offer dog walker rewards to renters.

Rented


Everyone wants to be a landlord until they realize how much work it is. Even if you employ the help of a property management company, it’s possible that you’ll end up at a loss once all your expenses are tallied, but what if you were guaranteed a profit?

Rented offers that guarantee. They are so sure of their product that they promise you a guaranteed annual income. If they don’t meet it, they’ll cover the difference. Plus, Rented takes care of everything, making owning a rental property a truly hands-off experience.

Knock


For many homeowners, upgrading from their starter home to a new property is a tricky dance. Most will need to sell their current home first and then scramble to close on the new property. It’s enough to make you want to rip out your hair, but Knock has the solution.

This company will give homeowners looking to “trade in” a cash offer, and allow them to move into their new home before selling their old one. This company helps buyers every step of the way and eliminates a major paint point for moving to a new home.

Related: House Hacking: Live for Free With an Airbnb Investment Property

Divvy


For many Americans, getting a loan can be increasingly difficult, especially when you need a large down payment. While “rent to own” is nothing new, in many cases, it was previously fraught with worries over shady landlords and deceptive deals.

Enter Divvy, a startup that allows you to purchase any home on the market as a rent to own deal. They require only 2% down and they cover any other costs involved with the deal, making it a great option for families who have income but don’t have a down payment. Plus, if you end up getting a mortgage at the end of the lease they’ll give you $10,000 for a down payment.

Flip


Most leases are for a minimum of 12 months, and you could end up owing some big fees to your landlord if you need to move unexpectedly for work or personal reasons.

Flip removes that headache for you by assisting people with finding qualified individuals to sublet their rentals and even negotiating with their landlord for them! They even have automatic payments to make sure their sub-letters are paying.

Flip raised $2.2 million in their seed round last year, and they’ve processed thousands of dollars in rentals every month. They are currently operating in New York, San Francisco and Los Angeles, but they have plans to extend to more locations soon.

OJO Labs


AI is everywhere, and soon it will likely be taking over real estate as well. Thanks to the internet, it’s easy to buy or sell a home without the need for a real estate agent at all.

However, if you’re looking to buy, then you’ll be missing a key component of that relationship. A real estate agent gives you personalized recommendations and helps you find the perfect home, but could a chatbot do that job?

OJO Labs thinks so, and they’ve raised $45 million to develop their real estate chatbot. This software not only gives recommendations based on your preferences, but it can also answer questions about the listing.

You can ask it details about the house’s layout and features, or you can just sit back while OJO delivers the perfect home to your phone via push notifications every time a new home comes on the market that matches your criteria.

OJO labs also acquired WolfNet, which gives the company access to 100 million property records, greatly expanding the reach of the tool.

Related: What is a Good Cap Rate for Rental Properties in 2020?