Real Estate Investor Articles

I am currently advertising one of my properties as a rent-to-own. I am trying to find someone who wants to buy the property but needs a flexible seller who will allow them to rent for a short time while they qualify for a traditional loan. I have discovered that there is a misconception that rent-to-own and lease-option are the same and that these are interchangeable terms. I disagree.

Call it semantics, but I think there is a difference even though they are similar and sometimes identical in structure.

The typical lease-option or rent-to-own involves a lease or rental agreement and an option or a purchase agreement. Aren't those basically the same? Yes, they are, but the difference, for me, is how I explain it to the tenant-buyer or lease-optionee.

If I were explaining a lease-option to the lease-optionee, I would tell them that that they are leasing the property. Any time during the option period, if they want to buy the house, they can exercise their option and purchase it for the price described in the option. Pretty good deal for them right? They can rent and, at their option, they can buy the house whenever they like.

Now, here is how I explain my rent-to-own program. If you were my tenant buyer, I would tell you that you are agreeing to purchase the property from me and we would have a purchase agreement to do that. I realize you may need some time to get your loan in place and I am willing to be flexible with you and allow you to rent while working out the details of your financing.

Can you see the subtle, yet very big difference?

In the lease-option, they are leasing the property and if they feel like it, they can buy the property by exercising their option to buy. In my rent-to-own, they are agreeing to buy up front and they get the privilege of renting while they are getting their loan in place.

Usually, as a salesperson, I am reluctant to correct a buyer (think "agree and redirect"), but I am very quick to correct my tenant-buyers when they try to say they have an option to buy. No, no, no... you need to like it now and commit to me that you are going to buy. Then, I will be flexible and let you rent-to-own the property provided that you qualify.

These are subtle differences, but they can really change the mentality of those in your property.

Until my next post,

James