Investing in a rent-to-own property has its advantages and disadvantages. Unlike a typical lease, once you’ve signed such a contract, you’re obligated to rent the property and potentially buy it if you’re interested. Although such an investment could turn out to be good for your financial situation, there are some dangers that you should be aware of, which we will discuss later on.
Naturally, the destination also has an impact on the advantages and disadvantages of such properties. For instance, Santa Barbara is an up-and-coming safe destination for many young people looking to settle down, so investing in a rent-to-own property there would probably be a good choice.
With that in mind, you should weigh the pros and cons before you commit. Keep reading to find out what to look out for.
How Does Rent-to-Own Work?
With rent-to-own agreements, you are permitted to rent a property for a particular amount of time with the option to buy it later on. Depending on the contract you’ve signed, a portion of your rent could be put toward the eventual purchase price. Such deals allow you to save and build home equity gradually. Basically, these kinds of agreements are perfect for those who want to be homeowners someday but are still not ready for a big investment.
With that in mind, there are two options available for most renters. The first one obliges you to buy the property at the end of the lease agreement, while the second one does not bind you to make a purchase.
Pros of Rent-to-Own Homes
As we’ve mentioned before, if the contract allows for a portion of your monthly rent to go to the purchase price, this agreement can help you start paying off your home while still renting it. Over time, possibly years, this money will amount to a sizable downpayment — one that you would have probably struggled to save otherwise. Still, you should bear in mind that every contract is different, so you should read it thoroughly before signing it.
Furthermore, if you don’t have a perfect credit score, you might have trouble qualifying for a mortgage. In that case, a rent-to-own agreement can help you get closer to purchasing a home while fixing your credit score at the same time.
Another advantage that many potential homeowners look for is the possibility of locking in the property price. Naturally, not all rent-to-own agreements allow that. However, those that do are bound to help you navigate your finances better and give you some peace of mind, as you will know the price won’t go up at the end of your lease.
Finally, an additional perk is knowing that you won’t have to move once your lease is up. Since you will already be living in the house you’re purchasing, you won’t have to pay for moving expenses.
Cons of Rent-to-Own
There are some downsides to owning a house through such agreements. For instance, you might have a nonrefundable upfront fee. In many cases, this money counts towards your down payment once you eventually purchase the home. However, every contract is different, so you should read yours carefully before signing.
Similarly, if a part of your monthly rent goes toward your downpayment, that might mean your rent is higher than the standard. For example, if you’re in Santa Barbara, your rent might be 10 to 15% higher than the typical rental price in the area.
Bear in mind that you might also be responsible for all repairs in the home, even as a renter. So, if the air conditioner goes out, you will have to buy a new one. The same goes for other purchases and repairs.
Plus, when it comes down to it, you might not even qualify for a mortgage at the end of your lease. Although you will probably utilize this period to strengthen your credit, be aware that you might end up being forced out of the home before buying it.
With these apartment rentals, you must be careful at every step. If the contract obligates you to purchase the home once the lease is up, but you cannot afford it, you might be in some serious legal trouble, so make sure to think everything through.
Find the Perfect Rental Property Company
If you’re looking for the perfect rent-to-own property, we advise you to find a great rental property company first. Since there are plenty of those that consider themselves to be top of the game, here are a few tips to separate the wheat from the chaff:
- Check references and experience
- Evaluate their commitment
- Examine their technology
- Read the fine print in the contracts
- Meet them face-to-face
- Confirm you can trust them
If you’re in the Santa Barbara area, The Laurel Company should be at the top of your list. For detailed information on apartment rentals, contact one of the first real property asset management firms in Central California. Its expert team is available 24/7, ready to find the property that suits your needs. For any inquiries, questions, assessments, and other concerns, feel free to contact The Laurel Company.