The Return of Rent-to-Buy

• October 27th 2022

by UrbanTurf Staff

As interest rates rise, a home buying method from the past is making a bit of a comeback: the lease purchase option.

The details of an arrangement like this can be a little confusing, so UrbanTurf spoke with local realtor Dominique Rychlik who recently saw the method employed on a home she was listing in the region.

The house in Potomac had been a rental for awhile, and when the tenants moved out earlier this year, a group saw the listing and fell in love. They weren't in a position to buy, however, so they worked out an agreement with the homeowner where they would rent the home for two years and then have the option to buy it at the end of that period. 

Here is how this rent-to-buy arrangement works:

The lease is normal by home rental standards with one large difference: a contract gives the renter a certain amount of time to exercise their option to buy at an agreed upon price. In this case, the renter and owner negotiated a purchase price of approximately $1.6 million. The renter was required to put down a $35,000 deposit, that would be retained by the owner in the event that the renter decided not to buy the home at the end of a two-year period.

The renter is also paying approximately $1,000 above the market rent for the home, and that monthly $1,000 premium will go towards the $1.6 million purchase price at the end of the two-year period if they exercise their right to purchase. If they do not exercise their option, the owner retains this premium. 

"With interest rates having rapidly increased (though still reasonably low by historic standards) buyers, sellers and agents are using more creative options to create a 'win-win' purchase scenario," Rychlik told UrbanTurf. "Lease purchase options are one tool I am seeing used." 

If there is a trend or idea that want UrbanTurf to research and cover, shoot us an email at editor(at)urbanturf.com.

This article originally published at https://dc.urbanturf.com/articles/blog/rent_to_own_homes_how_it_works/20249.