Things to Consider before Signing a Rent to Own Agreement
Rent-to-own properties are a perfect real estate ownership possibility for individuals that have less than ideal credit score and the ones that can’t afford to make a down payment. Before signing a rent-to-own agreement, however, there are a number of important things to take into consideration.
A solid rent-to-own contract needs to provide detailed and clear information about all aspects of the deal. Going through the essentials and asking questions before signing anything is the key to getting precisely what you want (without unpleasant surprises in the future).
The Structure of the Deal
The first thing to consider before signing the rent-to-own agreement is the structure of the deal.
Typically, a part of the rent should be credited towards the future purchase of the property. In the agreement, this should be highlighted in the form of a rental amount that’s higher than the market value for the respective property.
In case the rent corresponds to the market rate, the lender may refrain from crediting a surplus amount to the future purchase of the real estate.
If there’s no higher-than-market rent, the agreement could potentially feature a fee that’s paid upfront when the contract is being signed. This sum will once again be credited towards the purchase in the future. Make sure that the agreement features the exact mechanism in which the respective sum will be used towards the eventual purchase. Otherwise, you have no guarantee that the money will go towards the purchase of the property.
Agreements will also need a clause about the fate of these payments in case the tenant decides to refrain from purchasing the property in the end of the lease agreement. Usually, the tenant will lose this money.
In case you’re not 100 percent confident that you’re going to buy the property in the end, you may want to look for ways to alter the clause. While this arrangement for the money loss is standard, it’s still possible for the landlord to agree to a modification. Alternatively, you’ll have to look for another house.
The Sales Price
Obviously, this is another essential that should be stated clearly in the rent-to-own agreement.
The person renting the property is the only one that has the right to make a purchase in the time period specified in the contract. The sales price should remain locked throughout this period.
It’s very important to make sure that a fair sale price is listed in the contract. A good price will make it incredibly profitable to make a purchase in case real estate prices go up. On the other hand, an inflated price right from the start will have you paying much more than the property is worth if you decide to eventually buy.
If necessary, you may want to talk to a professional and have a property assessment. Determining an adequate price may be difficult if you don’t have the necessary training or you’re oblivious about the most important factors that have a positive or negative impact on the price.
Repair and Maintenance Clauses
Don’t leave anything to chance when choosing rent-to-own properties.
The agreement should have specific clauses about repairs and maintenance. Both the landlord and the tenant should know what their responsibilities are in the case of an accident that necessitates repair work.
Usually, the tenant will be responsible for keeping the premises clean. The tenant will also have to cover the cost of repairs caused by abuse of the premises or neglect. In other instances, the landlord will be responsible for covering charges stemming from repairs.
There should also be specific procedures for handling complaints and requests for repairs.
Rent-to-own agreements should also specify the manner in which the tenant is allowed to alter or modify the property. Typically, such changes will be limited and they may be carried out solely after a discussion with the landlord.
Entry Rights to the Property
Take a look at the entry rights outlined in the agreement. In some instances, the landlord will be granted access to the rental property at any given time. If this is the case, you’ll be incapable of claiming that the entry is either illegal or a violation of your privacy.
Term of Tenancy
This one is a no-brainer but lost in all of the other information, you can easily forget about the importance of having the term of tenancy clearly outlined in the agreement.
The term of tenancy is the period during which you’ll be renting the house and the period during which you have the right to make a purchase. The lease is fixed throughout this period. Rental agreements typically feature month-to-month arrangements. In the case of a lease, the arrangement is usually annual.
Limits on Occupancy
Prior to signing the agreement you should look for the clause that outlines the limits on occupancy. This clause lists all of the people who have the legal right to live on the property (plus children and dependents). The limits on occupancy prevent you from having relatives or friends living with you legally on the premises. Once again, if you are interested in a different arrangement, you’ll have to discuss it with the landlord. The standard agreement prevents you from having others moving in with you.
Restrictions on Tenant Behavior
While this isn’t the most crucial aspect of the agreement, it can still be limiting in terms of your lifestyle.
Landlords usually have rent-to-own agreement clauses that prevent disruptive or illegal tenant behavior. The clause could be rather generic or it can have highly specific restrictions that you’ll be forced to adhere to.
Certain conducts, excessive noise, parties and gatherings, drug use and drug dealing may all be grounds for the termination of the agreement.
Finally, rent-to-own agreements may feature an array of additional miscellaneous clauses. Notice requirements, anti-discrimination notices and the right on sub-letting are all typically presented in the contract, as well.
These are the most important things to consider prior to signing anything. Once again, you may want to consult an attorney or a real estate professional if any clause in the rent-to-own agreement troubles you. You have rights as a potential tenant and one of your rights is to ask for additional information or for a modification of an agreement that’s unfavorable.