You’ve been renting for years, and dream of owning your own apartment. Perhaps you’ve heard of them, or perhaps not, but rent-to-own apartments may be the right choice to put you in the position of apartment ownership.
Rent to Own Apartments
Rent-to-own apartments are apartments that give the renter a lease purchase option. In other words, when your lease term is up, or at some other time, as stipulated in your rental agreement, you will be given the option to purchase the apartment that you have been renting.
How Renting a Rent to Own Apartment Works
There are many things that go into the rental of a rent-to-own apartment that are different from a straight rental.
You need to negotiate a sales price for the apartment with the owner. This is no different from the negotiations that would take place if you were to outright purchase the apartment. You should take the same precautions, and fully inspect the unit, perhaps even hiring a home inspector. You may also want to have the apartment appraised. The purpose of the appraisal is that once you and the owner have settled on a sales price, you are both locked into that price. If the agreed upon sales price for the unit is $300,000, but the current appraised value is only $250,000, when it comes time to purchase the unit, if the value does not increase, you would not be approved for enough financing. Consequently, the whole point of the rent-to-own would be moot.
The owner will determine a monthly rental payment, and add money on top of that to be credited towards your purchase option. For example, if the rental payment for the apartment is $1,500 per month, the owner may charge you $1,800 per month, and apply the $300 difference towards your purchase option. If you lease the apartment for two years, at the end of the two years, you will have accumulated, excluding any interest, $7,200 to be put towards your down payment or the purchase price.
You need to pay an option fee for lease purchase option. This is the amount of money that the owner retains should you elect not to purchase the apartment. If you choose to purchase the apartment, this is then credited towards the purchase price. For example, if your option payment is $3,000, and you choose not to purchase the apartment when your two year lease is up, the owner keeps the $3000. However, if you do purchase the apartment, going along with the previous example, you would now have $10,200 to put towards your down payment or the purchase price.
Have an Attorney Help You
Have an attorney review the lease and purchase agreements. Don’t sign anything without fully understanding the ramifications. For example, if the apartment doesn’t pass an inspection at the time of your option, and you consequently do not purchase the apartment, do you still lose the option fee? Also, be sure that the sales price is not inflated because you are locked into it, even if the market declines.