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October 1, 2016

A Solution to the Rental Crisis: Rent-to-Own?

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A Solution to the Rental Crisis: Rent-to-Own?

Rents are skyrocketing across the country, as more renters devote more than half of their paychecks to covering rental costs. The escalating costs in rent have been blamed as being a major hindrance that is preventing renters from saving enough for a down payment to buy a home.

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But some housing analysts are pointing to rent-to-own agreements as a solution for those stuck paying rents but wanting to own.

For example, a report from Moody’s Investors Service singles out a program called Home Partners of America, which helps potential buyers who can’t purchase a home due to a lack of a down payment or credit problems. One of the unique aspects of the program – compared to other single-family rent-to-own programs – is that the buyers select a property they would like to purchase, and then Home Partners of America buys it (but it must meet the program’s qualifications), and then sets up an agreement to rent the property to the would-be buyer. The end goal, however, is that Home Partners of America will eventually sell the property to the renter later on.

The buyer-chosen properties are likely to be “higher quality and in more desirable locations [such as those with better school districts]” than properties that are purchased through foreclosure sales, according to Moody’s report.

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Under the rent-to-own agreement and during the lease term, the tenant would be able to purchase the home at a pre-set price. The lease term generally runs between three to five years. The longer they wait to buy, the higher the price will go. The purchase price usually rises by 3.5 percent to 5 percent per year during the term of the lease.

“Furthermore, the strategy could benefit property recovery values because renters with purchase options are incentivized to maintain their properties well,” Moody’s report notes.

Moody’s report shows that the average value of its properties under the program is $247,483 in comparison to homes offered by Invitation Home sand American Homes 4 Rent that average $167,631 and $143,066.

Source: “Is Rent-to-Own the Future of Housing?” HousingWire (Jan. 14, 2016)