Rent to Buy

A “rent to buy” arrangement is a form of owner financing in which a landlord agrees to set aside part of a tenant’s monthly rent as a down payment toward the purchase of the apartment or property.

As in any owner-financing arrangement, the agreement can be struc­tured in any way the landlord and tenant agree upon.

 

For the tenant, the advantages can be . . .

• The ability to put a portion of rent to good use, the purchase of the property.

• The chance to leverage ownership of a property with a small down payment or no down payment or, at the very least, with a reduced outlay.

• The opportunity to get to know a neighborhood or property before a full commitment to buy is made.

 

For the landlord, the advantages can be . . .

• A chance to sell a property for a higher price than might be commanded if the property were simply put on the market.

• The opportunity to generate greater monthly cash flow than might be possible from a simple lease.

But there are risks as these two statements show:

• “I was delighted when I entered into a rent-to-buy arrangement with a couple who had really fallen in love with the little house they rented from me, a house I had been unable to sell for quite some time,” says Bruce. “But then they got divorced, the husband left, and I had just one tenant who was barely able to make rent. She left, and six months later I was right back where I started — with a house to sell. Actually, I lost money because I had to give the place a fresh coat of paint and other cosmetic fix-ups before I could list it again.”

• “We signed on to spend more per month on our rent-to-buy deal than we would have spent just renting a similar apartment,” says Juan, “and then we didn’t like the neighborhood. When we moved out, we had spent more money fixing the place up than we should have. Of course, we were better off in the long run because we had avoided purchasing a home in an area that would have disappointed us. But overall, it was a disappointing experience.”

 

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