Can I earn equity with a rent to own agreement? This question comes up a lot… and really, the answer depends on what the property owner wants to do when they’re offering their home as a rent to own.
One of the benefits of owning a home is that you (hopefully) earn equity as you make payments and pay down the mortgage.
One thing many homeowners don’t take into account is that during the first 5 years (or more) the majority of your mortgage payment to the bank is interest… and very little of your payments for the first 5 years actually goes to pay down the principal and earn you equity.
But on the flip side, the 2nd half of your mortgage is usually where the majority of your equity is earned since most of those payments go to the principal.
So how does it work with a Rent to Own Agreement?
When you do a lease option / rent to own home in Southern California there are various types of arrangements you can make… but this is the most common:
- You find the rent to own home you like and negotiate the lease and the option to buy with the property owner.
- You and the owner agree on monthly rent, an option fee which pays for the privilege to have an opportunity to purchase the home later, and the ultimate purchase price of the home when you buy it.
- You move in and pay the monthly rental amount and treat the home like an owner (since you will be owning it someday).
- The property owner typically allows a portion of the monthly rental amount (rent credits), as well as the option fee, to be applied towards the purchase of the home. This allows the tenant-buyer to earn money (“equity”) for every month that they paid the rent on time… and it helps the property owner sell the home at the end of the rent to own agreement since now the tenant has some equity in the deal.
There is a great opportunity to earn equity with a Rent To Own home today!
One of the great benefits of renting to own a Southern California house is that you get the ability to have the home seller agree to sell you the home for a price you agree upon today.
And the beauty is… if the real estate market does well during the rental term and the home goes up in value… the seller can’t raise the price on you.
So whatever home value growth happens during your rental term over and above the sales price… that’s your equity to keep!
Now, is there a guarantee that the value of the home will go up and you’ll earn equity?
No, but just make sure that when you’re signing the rent to own agreement that you have done a bit of research to see if the area the home is in has a good chance of increasing in value. Currently, most homes in Southern California have an excellent chance of increasing quite a bit over the next few years.
Before we wrap this article up… you may be wondering if you HAVE TO buy the house at the end of the rental term…
The answer is NO. If you decide you just don’t want to (or can’t) buy the home at the end of the rent to own agreement… you can usually continue to rent the home or you can leave. You’re NOT bound to purchase the home. However, the seller IS bound to sell you the home at the predetermined price as long as you followed the terms of the agreement (i.e. – you didn’t miss payments, you weren’t evicted from the home because of a breach of the rental agreement, etc.).
If you’re looking to get more info about our local Southern California Rent To Own Homes Program… simply give us a phone call at (951) 226-5056 or fill out the form on this website to see our current LIST OF AVAILABLE RENT TO OWN HOMES here >>