Rent To Own: How It Works

If you are in the market and looking to buy in Lake Tahoe, you may have heard of or even been offered a “rent to own” opportunity. Slowly easing from renter to buyer sounds like an easy enough transition, right? Not so fast. While it may be a good fit for some, here are some things you need to be aware of before going this route in your quest for homeownership.

First, what is it exactly? Well, for lack of better terms, it is pretty much what it sounds like. You rent first, and then hopefully you own. You will start off paying the seller (aka: your landlord) rent every month. Chances are it will be a higher rate compared to a regular rental with a portion being put towards the purchase price of the home. Once the rental agreement is up you have the option to purchase the home outright.

Now that we have covered the basics, lets get into the part where things tend to get a little complicated. Everyone knows that when you are looking for a rental, you can expect to pay a hefty amount of fees. The deposit, first and last months rent, extra deposits for pets, etc. In a rent to own scenario, you can expect to pay way more-if first, last and deposits weren’t enough. This “option fee” allows the renter to buy the home for a set price in the future. More often than not, it isn’t refundable and you will still need to save for the down payment, closing costs, etc. as you would in a regular escrow. That is a lot of money at the end of the day and definitely a decision that shouldn’t be taken lightly.

Of course, all these details should be covered and agreed upon in an air tight contract. Don’t breeze through this like you would a usual lease agreement as these types of contracts are generally pretty lengthy. For example, the length of the rental timeframe is usually set by the seller and can be anywhere from months to years. Of course a longer rental period gives the buyer/renter more time to fix any credit errors and save down payment funds, it also leaves some time for things to go awry. Also make sure that when you are going through the contract that it isn’t written completely with the sellers best interest in mind. In a regular escrow, both sides have to go through negotiations and agree on the terms. This should be no different. While there are laws protecting buyers, the seller can create a contract full of loopholes that could create all types of problems down the road.

Speaking of laws and loopholes, do not forget: The seller is also your landlord! You will need to follow the standard state laws for tenants otherwise you risk eviction and potentially forfeiting all that money paid up front. Also keep in mind that the terms you agree upon now may not be accepted by a lender when it comes time to buy. The guidelines for underwriting on a mortgage are very specific. Hiring a real estate attorney to go over the contract before you sign is the best way to prevent yourself from a Lake Tahoe real estate disaster later.

If you are looking to buy real estate in the Tahoe Keys or are looking for general information on the Lake Tahoe area, call Peter Delilli at 530-308-4331.

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