The typical home buying process goes something like this: you save up your cash, get preapproved for a mortgage, and put an offer on a house that fits your budget. The offer is accepted; then, you sign the loan, grab the keys, and move in.
But what if that sequence of events doesn’t work for everyone? Sometimes you don’t have enough cash saved up for a down payment, or you’re between jobs and can’t qualify for a loan. Maybe there’s a divorce that hasn’t been settled yet, or another financial obstacle in your way.
If that’s the case, there’s an alternative route to homeownership you may not have considered: finding a rent-to-own home. These arrangements, when structured properly, can bring a lot of benefits to both buyer and seller.
However, it’s not always easy to uncover these opportunities by simply browsing real estate listings or driving through your dream neighborhood, and you have to be wary of unscrupulous sellers. We talked to expert agents experienced in the rent-to-own process to show you exactly where to look and what pitfalls to watch out for.
Here’s how to find rent-to-own homes, avoid scams, and get another step closer to homeownership.
Talk to an experienced agent
One of the most invaluable resources at your disposal during the house-hunting process is an experienced agent by your side. You’ll want to find an agent who has experience conducting rent-to-own transactions because there can be a lot of unfamiliar terms and conditions with these agreements. Although a seller probably isn’t out to take advantage of you, neither are they working in your best interest, so a buyer’s agent is extra armor against a bad deal.
James Silver, a top Detroit-area real estate agent with 19 years of experience, knows how important a good agent is when searching for rent-to-own homes. He’s worked with 76% more single-family-home sales than other agents in his area, and he’s got extensive experience with rent-to-own properties.
“Sellers aren’t going to help you make all these decisions” that go into a rent-to-own contract, he explains.
“That’s why you need a really good real estate agent to advocate on your behalf.”
Not only can an agent offer their insight and years of experience, but they can help you find just the right opportunity, whether that’s through specific MLS searches, their extensive real estate network, or their knowledge of the latest trends in your market or geographic area.
“Rent-to-owns can be helpful to those who do not currently have the money for a down-payment, allowing them time to save,” Silver said. “But it’s also important to remember that if you are not able to purchase at the end of the contract, you may lose any money that went toward rent premiums.”
That’s why it’s also important to get preapproved for your financing before you begin looking, so you don’t waste time renting-to-own something you can’t truly afford.
Find a brokerage with a rent-to-own program
You also might consider going with an agent or brokerage with dedicated rent-to-own programs to find homes to lease with the right to purchase. For example, top Tampa real estate agent Christina Griffin uses the Home Partners program to help her buyers get into homes in their desired neighborhoods.
Not a brokerage, these types of companies are closer to real estate investment firms. They work with you and licensed agents to find a single-family home you may not typically be able to rent. Then, they set a purchase for the home and lease it to you; you have the right to buy the home after your lease is up at the preset price. These programs allow you to move in and get a feel for the home and the neighborhood before fully committing to a purchase.
Griffin’s 19 years of experience, particularly with single-family homes, have given her a lot of insight into the problems that can crop up with rent-to-own homes.
“If at any time the person that owns the home goes into foreclosure or they decide to sell the home, it’s very hard to be able to have the ability to get that money back that you’ve invested,” she said. “More people than I can count, the home went into foreclosure.” The renters had no clue there was even any trouble, and then the home is taken from under them.
Using a rent-to-own program such as Home Partners helps reduce some of that risk. Instead of rent-to-own, the arrangement is what’s known as “rent with the right to purchase.” You pay rent, but you pay nothing additional toward the purchase price. Your rent and the purchase price are both locked in, and you get the right to buy the house whenever you’re ready, according to the terms of the agreement.
Griffin recommends to her buyers that they make sure it’s a rental price that they can afford and that they can make sure they’re in an area where they can buy. “There’s just a lot of uncertainty around rent-to-own, unless it’s an investment property,” she said. That’s why a specialist company can benefit the buyer — by removing some of the risk that the seller might not make good on their end of the deal.
Contact a seller
An experienced agent can help you think outside of the box and identify listings that have been lingering on the market for months. The sellers of those homes might be especially interested in renting, an opportunity that gets them a little extra money per month while both parties move toward an eventual sale.
For a seller who’s been having a hard time selling a property, a rent-to-own arrangement helps them with monthly income in the form of rent from you. And if you’re not in a position to secure a traditional mortgage, you can be living in a home while you rebuild your credit, look for a job, or wait for legal matters to be settled — whatever your situation may be.
Arranged properly, rent-to-own agreements can benefit both parties. Your agent can help you locate these sellers and negotiate a deal.
Even if a seller isn’t currently offering a rent-to-own option, your agent can float them the possibility.
Silver says, “I call the agent and just say, ‘Hey, I have a client that’s looking for something like this with a lease-option (to buy); they have really good credit scores, they’ll be able to buy in the future, and your seller can collect extra money in the meantime and get what they’re looking for.’” The listing agent can then take that offer to the seller and sometimes work out a deal.
He also offers to call people who have a home for lease. “They’re often open to lease with options — or if it’s just a straight rental, just call and ask people.”
You won’t know unless you ask, and your agent can help you ask.
Find a reluctant landlord
Similarly, you and your agent may be able to find a landlord who’s looking for an escape hatch. If they’re interested in selling the property they’re currently renting out, your rent-to-own offer could be a great way to make that transition.
These types of landlords usually have just one rental property, and they may have begun renting it out because they had difficulty selling it. You may be able to sweeten the deal by offering to maintain the home and perform repairs while you’re renting — tasks that reluctant landlords may particularly dislike. In return, if all goes well, you’ve got a home to purchase at the end of the contract: one which you’ve been caring for and living in, so you know what you’re getting.
Use a specialty portal
One source of possible rent-to-own homes is the foreclosure market. Homeowners facing foreclosure might be especially open to a rent-to-own contract; the catch is that you cannot do a rent-to-own arrangement if the house is already in foreclosure. But if the owner is in pre-foreclosure, they can benefit from the rent they collect from you while also securing a path to the eventual sale of the house.
One such specialty portal that can help you find quality leads for rent-to-own homes is foreclosure.com. They have thousands of listings where the seller is willing to enter a rent-to-own agreement with the buyer, and you can browse by state and even by county.
You’ll still need to offer terms the seller will agree to, and it’s worth the money to hire a real estate lawyer to review your contract to make sure all of your bases are covered.
Reach out to your network
Finally, you just may find that someone in your circle is trying to unload a home and would love to connect with you. Reach out to your friends, neighbors, and other social contacts. Let them know you’re looking to move; ask around if anyone is open to a rent-to-own arrangement.
You can also widen your net by posting on a neighborhood notice board or a site such as Nextdoor.com or Facebook. Just be careful when advertising outside of your circle, because rent-to-own scams abound. It would be crushing to pay years of rent credits and an option fee only to find the “seller” doesn’t legally own the home, or never intended to sell it at all.
No matter which way you go about finding a rent-to-own home, it’s so important that you protect yourself against financial disaster. Get everything in writing, get a trusted expert to look it over, and don’t rush into anything — especially if it sounds too good to be true.
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