How It Works...

A Rent It. Buy It. Own It! aka Lease With A Plan transaction essentially works like this:

1. The buyer and seller agree to the possibility of a sale of the rental property at some point in the future.

(Lease with Option To Buy - 1 to 3 yrs)

Ultimately, the renter/buyer decides if the transaction will actually take place at the future date. (During or end of the Lease Term)

In the meantime, the Tenant-buyer makes payments to the Homeowner-seller, and a portion of those payments including the upfront Option To Buy payment which is required, reduce the money needed to buy the house at a later date.

2. A Rent To Own or Lease Option transaction starts with a written agreement. Both the Tenant-buyer and Homeowner-seller agree to certain terms, and some of the terms may be negotiable.

Depending on what's important to you, you can request certain features or options before signing the contract if those options are available and agreeable to both parties.

For example, you might request a larger or if allowable smaller option payment if that would be agreeable to the Homeowner-seller.

3. At the beginning of the Rent To Own - Lease Option transaction, the Tenant-buyer pays the Homeowner-seller an Option To Buy payment.

This Option To Buy payment gives you the Tenant-buyer the first right or “option” before anyone else, to buy the home at some point in the future, either during the lease agreement term or end of the lease agreement.

The Option To Buy payment is non-refundable, but it will be applied to the purchase price if the Tenant-buyer ever buys the home. Keep in mind that the upfront Option To Buy payment is non-refundable if you breach the Lease or Lease Option agreement. 

4. The Homeowner-seller sets a purchase price for the home in the Lease Option agreement. At some point in the future (usually between one and and three years or more, depending on agreement), the tenant- buyer can purchase the home for that price on the agreement – regardless if the home went up in price.

When setting the price, a price that’s higher than the current price is not uncommon (adjusted for the projected appreciation value percentage per year and inflation).

If the home has gone up in value faster than expected, things work out in the Tenant-buyer's favor. Tenant-Buyers will apply for a mortgage when the time comes to purchase the home.

5. Of course, the Tenant-buyer also makes monthly rental payments to the Homeowner-seller. Those payments serve as rent payments (because the Homeowner-seller still owns the property), but the renter typically pays a little bit extra each month. The extra amount is credited to the final purchase price, so it reduces the final purchase price at the end of your term or contract.

6. Again, the extra rent "premium" is nonrefundable as is the Option To Buy payment – it compensates the Homeowner-seller for waiting around to see what you, the Tenant-buyer will do (the Homeowner-seller can’t sell the property to anybody else until the agreement with the potential Tenant-buyer ends).