In recent years, we've all seen how the cost of just about everything has gone up. Groceries. Gas. Healthcare. Inflation also hit the real estate market. While Tucson home prices decreased from their highest point in June 2022, they steadily increased each month since February of this year. Partner that with higher interest rates and buyers begin to look for alternative ways to purchase a home. One of those options may be a rent-to-own situation. Here is what you need to know about this option before you start down that road to homeownership.
Rent-to-Own: The Good, The Bad & The Ugly
How it Works
Basically, you have two options when it comes to rent-to-own real estate: lease option or lease purchase. Both of them designate a specific amount of time and a specific amount of money to be paid each month. Additionally, the renter must pay a non-refundable fee. The eventual sale price is decided at the time of the agreement. At the end of the agreed rental period, the renter either agrees to buy the house or they are given the option to purchase it. Which one depends entirely on the initial agreement signed by both parties.
The Good
One good thing about rent-to-own is that you have the opportunity to "test drive" the property before actually buying it. Also, part of your rent goes toward your down payment at the end of the agreement. So, instead of coming up with one large chunk of money at one time, it forces you to "save" for your downpayment in smaller increments. Plus, when you choose this option, it takes away any competition from other buyers. Finally, you can take your time exploring your mortgage financing options as well as work to beef up your credit score during the rental period.
The Bad
On the downside, you pay much more monthly for "rent" than you would otherwise. Plus, you may have to pay for any maintenance required on the house while you rent it. That includes everything from regular landscaping to emergencies that may arise during your rental agreement (pipe bursting, electrical shortage, water leak, etc.). Another negative is that you are stuck with the sale price in the contract, even if the property depreciated in value since the initial signing of the contract.
The Ugly
Finally, what could be considered the "ugly" part of the rent-to-own option...you're at the owner's mercy. If they take your money yet refuse to pay their mortgage, the house may go into foreclosure. Then, you lose all of the money you put into it: your monthly rent (that includes part of your down payment) as well as any money you paid for maintenance costs. That puts you right back at square one with nothing to show for it.
So, before you decide whether this is a good option for you, weigh all of the pros and cons. Then make an informed decision about whether or not "rent-to-own" is the best choice for you.
Rebecca Schulte, Schulte Real Estate Group, Your Source for Tucson Real Estate
