The concept of Rent to Own originates from a time when landlords would frequently increase their rents after taking into consideration the cost of living increases and property taxes. These days, it is more common for landlords to resort to less traditional tactics in order to retain their assets. In recent years, the paradigm has shifted from simply renting to owning. Today, savvy landlords are finding innovative ways to entice tenants to remain in their properties while also assuring that they are compensated for their investment.
What is the concept of Rent to Own?
Simply put, Rent to Own Program is when a rental property is transferred to a private buyer, with the intention of the buyer continuing to pay the rent. Typically, this is a three to five-year cycle, during which time the renter will make monthly payments that cover the cost of ownership taxes and maintenance.
The benefits to the tenant of Rent to Own are countless. First and foremost, you have the security of knowing that you are not committing to a long-term lease. Second, you will benefit from the fact that you will not have to deal with unexpected repairs or maintenance issues. Finally, the transaction is often favorable for the tenant, since they can negotiate a better deal than if they were to lease the property directly from the landlord.
Why Do Landlords Want to Rent to Own?
Now it’s time to explore why landlords would want to go through the hassle of Rent to Own. This process is typically preferred by landlords who want to generate a higher return on their investment. The more traditional route would be to simply sell the property and enjoy the rental income. However, by taking the time to understand the tenant’s needs and goals, they may be able to secure a long-term lease with an option to purchase. This would mean that they would only have to pay for the costs of maintaining the property. In some cases, the option to purchase can be structured to provide the tenant with a significant sum of money to fund their future investments.
How Do I Want To Spend My Retirement?
Whether you want to spend your retirement relaxing and enjoying life with your family or you want to be able to contribute to a higher degree than you could feasibly earn as an employee, there are dozens of ways in which you can put your money to work for you. The two most common vehicles for funding retirement are real estate and the stock market. In the case of real estate, you can buy a home that you will not have to pay for in any way. During your retirement years, you will enjoy the benefits of living in a fully paid-for home with all the maintenance taken care of. For those who are looking for a higher degree of income, a stock market is a great option thanks to the many investment vehicles available. There are both conservative and aggressive investment strategies that anyone can follow, so long as they are familiar with how the stock market functions. In either case, your financial advisor can help you determine the best course of action for your unique situation.
The Pros And Cons Of Renting Directly Vs. Renting To Own
Before you jump into renting to own, it’s important to consider the benefits and pitfalls that come with the two main options available to you as a landlord. The first and most obvious option is to lease the property directly from the owner without any intervention from you. The cons to this are many and varied. First of all, the cost of management fees can be substantial. These fees often include things such as cleaning, repair, and maintenance. These expenses add up quickly and can eat into your profits. Second, if the owner decides to sell the property, you will not be compensated for the effort and investment that you made in renovating and increasing its value.
In contrast, the second option is to rent the property to someone who will then own it. The benefit to this is that you can continue to earn good, reliable money from the rental income and make necessary repairs and upgrades without having to worry about overpaying due to increased costs of living. The con here is that you will not be able to provide the same level of security that you can with a direct lease. This is especially important if the person that you are renting to does not own any assets, has few if any credit cards, and cannot pay for any major repairs or maintenance. In this case, you could be left with a property that requires a great deal of work and could potentially become a money pit.
When Is It Time To Rent To Own?
As previously stated, there are several benefits to renting your property to someone who will then own it. One of the primary benefits of this route is that you can delay paying for the costs of owning a property. Second, you are not restricted to what types of tenants you can attract simply because you are a landlord. This is especially beneficial if you want to avoid having a house-party type of party in your home every weekend. Last but not least, this option gives you the security of knowing that you are not overextending yourself financially by renting a property that you deem to be uneconomical to maintain. In case you did everything right, you will have created a passive income stream that will help you finance your retirement.
As you can see, there are many different options available to the modern landlord. From renovating properties to increase their market value to finding innovative ways to lease existing properties, savvy landlords are finding ways to make money and other income generating assets while at the same time providing good value to their tenants.
