This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

How a Rent-to-Own Home Can Pay Off for You

NEW YORK ( TheStreet) -- For buyers and sellers in a dicey housing market, a rent-to-own deal can be the perfect compromise. But how can each party know if the terms make sense?

Most people find a standard home sale challenging enough, with negotiations on price, closing dates and contingencies. But the rent-to-own deal adds other considerations: the price of the option to buy, the monthly rent and rent premium and the duration of the deal.

The seller must determine whether the deal is more profitable than an immediate sale, probably at a lower price. The buyer must decide whether the extra expenses are better than alternatives such as renting another property until it's a better time to buy.

To help with these calculations, Jack M. Guttentag, an emeritus finance professor at The University of Pennsylvania's Wharton School, has created a free online calculator on his website, The Mortgage Professor

While all terms are negotiable, in a typical rent-to-own deal the home's sales price is somewhat higher than the owner could expect to get immediately, and lower than the renter might expect to pay later. For an upfront premium that's usually between 1% and 5% of the sales price, the renter gets the option to buy anytime before the deal ends, usually in one to three years, while the owner agrees not to sell to anyone else during that period or to raise the price.

During the option period, the renter pays rent plus a monthly "rent credit" to compensate the owner for some of the risks involved. Typically, the premium and rent credits that have been paid are applied to the purchase payment if the renter opts to buy. The owner keeps those funds if there is no sale, and is free to sell to someone else after the deal expires.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%
YHOO $45.10 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs