Risks for Sellers in a Rent to Own Agreement
- Uncertainty
The renter might decide to buy the house eventually or opt out. If they choose the latter option, you have to start all over by finding another renter or buyer. Although you will keep the option money, the inconveniences that come with opting out are severe.
- Missing appreciation
Usually, you should lock the sales price when signing the agreement. Although this could be a good thing because the market price could go lower, it is also risky because the price might appreciate faster than anticipated. If this happens, then you miss out on the extra money that you would have earned, had you decided on the buying price later.
- Slow money
If you want to cash your investment right away, a lease to buy contract is not ideal. The reason for this is that you will be getting rental income. You only receive the lump sum amount when the renter is ready to buy, which is often at the end of the lease. Therefore, if you are selling the house in order to buy another one immediately, a rent to own agreement will not work for you.
- Discovering flaws
When the buyer starts residing in the house, he or she might notice a flaw that you were not aware of. When they note the mistake, they might decide not to buy the home and forfeit the contract. A plumbing system might be sufficient for a family of three, but not a family of five. Therefore, some of the issues are not necessarily your faults, but they are aspects of the house that the tenant cannot live with.
- Falling home prices
Just like in the case of missing appreciation, the price of a property might also decrease. When this happens and the buyer fails to meet his agreement, then you will have no option but to sell the home for a lower price.
