Are you thinking about selling your Loganville property and wondering if it’s a good idea to make a rent-to-own arrangement with your buyer? If you didn’t know it yet, rent-to-own is when you allow the buyer to rent your house until the home’s total price is paid. Ideally, you need to look at the price to rent ratio in your area to know if it’s a good time to rent out a property. The higher the price to rent ratio, the more favorable the market conditions are for putting up a rental.
Deciding whether to go with this or not can be confusing because you have to factor in the long-term impacts of managing a rental. So in this article, we try to help you dissect the pros and cons of offering your home on a rent-to-own scheme.
Pros of Selling via Rent-to-Own
Letting go of a sentimental home might be difficult to process and accept, especially for those very attached to it. Rent-to-Own is an excellent way to let go of your home in a not-so-shockingly abrupt manner. Picture this, although you don’t live in it already, you can still check on it from time to time and take care of it whenever you want to. Other benefits include:
More Interested Buyers
Remember, most average buyers always go for the lowest price they can get for the home they want. This includes saying yes to a rental more than getting a mortgage since rental rates can be cheaper. This is usually applicable, though, if your mortgage is fully paid. If not, you’ll still have to charge it to your tenant and end up asking for an expensive rental fee.
Turning your home into a rental is an excellent investment if your goal is to have a steady, passive income. Although this doesn’t give you high returns as much as other real estate investments, it can give you some peace of mind.
Get a Higher Purchase Price
Imagine buying a new T.V. The salesperson approaches and says that the T.V. has two payment options: one is through a lump sum cash while the other is through installments. It’s not unusual to see people becoming instantly hooked to option#2 because installment premiums are, no doubt, cheaper than paying the total price upfront. But the catch is, some installments charge monthly interest. At the end of the term, the installment-paying customer is actually paying for more than the original retail price.
This concept right here can also be applied to your rent-to-own. Let’s say your lump-sum price for the house is $110,000. If you are open to selling it via a rent-to-own scheme for five years, you can increase the price first before dividing it for 60 months.
Cons of Selling via Rent-to-Own
If the benefits of a rent-to-own are worth the wait and effort, why doesn’t everyone do it? Well, while the benefits of a rent-to-own scheme can be tempting, there are also some little-known pitfalls. And most of the disadvantages are not worth it for other people as well. Here are three of the most common concerns of a rent-to-own for home sellers:
No Guarantee of Purchase
Buyers can back out of a rent-to-own agreement as long as they do so legally. Sometimes, life circumstances develop and force tenant-buyers to relocate. You’ll still get to keep the extra money they paid you, though, but not the total price anymore — not ideal if you don’t want the hassle of looking for another tenant/buyer again.
Unexpected Market Fluctuations
If you rent-to-own and market prices go up, you’ll miss out on that appreciation because your price will remain as what was written in the contract. Similarly, if the market takes a downturn and the renters back out, you’ll be stuck with the property in a less profitable market. If you are willing to bet on these risks, then go ahead. Anyway, there are many exit strategies out there to explore.
Having tenants in the home you intend to sell adds a lot of additional risks. For one, the “buyers” may discover structural problems that you have to fix while they’re renting. You, as the landlord, have the responsibility to handle it according to the Georgia Landlord-Tenant Handbook. That’s going to be additional expenses on your part.
Likewise, if you happen to have bad or irresponsible tenants who damage your home and back out of the agreement altogether, that will not be great for you even after they vacate your home permanently.
The bottom line is, there is no exact recipe for a perfect rent-to-own arrangement and experience. If you don’t want to face the risks of a rent-to-own and still want to sell your house for a reasonable price, get in touch with us at Spire Property Solutions. We buy houses for a fair cash price, and you won’t have to wait long to get an offer. Give us a call today at (678) 318-1801 or message us through the form below. Your reliable home buyer awaits!