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Rent to own homes

Rent to Own Homes

Rent to Own Homes

The words “Rent-to-Own” homes refers to getting into an arrangement to rent out a house for a pre specified tenure and converting it into one’s home by purchasing  the same from the owner of the house. It is a financial contract between the tenant and the owner wherein, the tenant has the choice to buy the property at a mutually agreed purchase price decided at the time of commencement of the lease period. Most importantly one has to remember that it is not obligatory on the part of the tenant to buy the property. He has the option or in other words choice to buy the house or not at the end of the Lease period.

The other names by which the “rent-to-own” option is known as are “lease-to-own” options or “lease purchase”. Since the tenant enjoys the option, he agrees to pay to the owner a certain premium over and above the rent that he pays monthly. The premium amount consists of a fee related to this option called the option fee and a monthly amount over and the above the normal rent which is called the rent premium. The owner of the house receives this premium since it is the tenant who decides at the end of the lease period whether he purchases the property or not and he has no say in this arrangement. In case the tenant decides to exercise his option and purchases the house, the purchase price decided at the commencement of the lease period gets reduced by the premium amount paid in the form of option fee and rent premium. On the other had, in case the tenant does not buy the property, he has to forego the entire premium paid to the owner.

There is something in it both for the tenant and the owner in case of “Rent-to-own” homes. While it gives the tenant an opportunity to have a first hand experience of how it is to live in a house which he plans to own, the owner is assured that his property will get liquidated at the end of the lease period.  It would be expensive for the tenant in case he decides not to buy the property, but it is still worth it since he is not saddled with a house that he does not want to own for a variety of reasons.

The tenant must do a hard negotiation on all the parameters involved in “Rent-to-own” homes. These include negotiating the purchase price that he would be paying at the end of the lease period, monthly rent and the rent premium and the option fee.  The most complex part of “Rent-to-own” option is the estimation of the price of the property at the end of the lease tenure. It is the market price of the property at the end of the Lease period which is by far the most important factor which determines whether the tenant would end up in owning the house that he rented few years ago.

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