The lease or rent to own method is often overlooked by home sellers. However, this method can be the quickest and least expensive way for an owner selling their home.
If you're not in a "hot" real estate market, you may find that having real estate agent does not guarantee that your home will sell quickly.
And you may not receive your asking price.
You will find yourself paying a substantial commission to your real estate agent if and when your home finally sells at whatever price it ends up selling for.
For example, if the original asking price for your home was $200,000 and you end up having to settle for $190,00, you'll have "lost" $10,000 from your asking price and, using a 5% commission rate, will pay a $9,500 agent commission, for a total of $19,500.
Using the "for sale by owner" (FSBO) method to sell a home eliminates the need to pay a commission to a real estate agent. However, it may take longer to sell the home and the owner will likely end up selling for less than their asking price.
A lease or rent to own option offers several advantages to the home seller.
One is that you are tapping into a market composed of otherwise qualified home buyers who would otherwise be unable to purchase a home because they lack the down payment or credit rating required to obtain a conventional mortgage and need two or three years to save a down payment or improve their credit score.
Including this market may result in your home selling more quickly than would have been the case using a real estate agent or FSBO.
Additionally, a lease or rent to own a home buyer will often agree to the asking price, rather than haggling, and are happy with a long term lease, e.g., three years or more, until such time as they are able to obtain a mortgage to purchase the home.
So, you may be able to get your asking price and will not have to pay a real estate agent commission.
And you could end up making more from the sale of your home than would have been the case had you sold outright.
For example, the monthly lease payment you decide on could be what a mortgage payment would be using your asking price and the lowest available mortgage rate for the period of the lease, e.g., for a three year lease the rate would be the lowest available three year mortgage interest rate.
Using a $200,000 home and assuming the lease or rent to own buyer agrees to the asking price and requires a four year lease before they can obtain a mortgage, the monthly rent would be, based on a 5% interest rate and 25 year amortization, $1170.00.
The "principal" portion of the rental payment could go towards the buyer's down payment on the home and the "interest" portion will belong to the you.
At the end of the four year lease, the "principal" paid by the purchaser will be approximately $20,000, which will all or part of their down payment for the home, and the interest earned by you over the period of the lease would be approximately $42,000.
This means you will receive approximately $242,000 ($200,000 + $42,000) from the sale of your home rather than the $180,500 or $190,000 the would have received selling their home through a real estate agent, and on top of that will have saved the real estate commission, or by FSBO.
Unlike a straight rental situation, the maintenance and repair costs associated with the home are assumed by the buyer, as would be the case if they had purchased the home outright rather than entering into the lease to own agreement.
If at the end of the lease the lease or rent to own buyer is unable to purchase the home and you do not want to extend the agreement, the portion of the rent that would have otherwise gone towards their down payment is forfeited and belongs to you.
As with any financial decision, you need to decide which method of selling your home that best meets your own needs and personal situation and tolerance for risk.
If you are selling a home in a slow market and competing with may other sellers, the lease to own method may be your best option for a quick sale and maximized return.