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What You Need to Know About Rent to Own Condos

Why People Choose the Rent-to-Own Option

The two most common reasons that people choose the rent-to-own option are:

  1. They have poor credit
  2. They don’t have the finances for a mortgage now, but will likely have it in the near future.

It’s important to remember that usually you have to be able to qualify for a traditional mortgage within a few years of moving in. If you don’t have the ability to put down the mortgage, you may lose all of the extra money you’ve been putting in.

How do Rent-to-Own Condo Arrangements Work?

All of the rent-to-own condo agreements are going to be different, each state will have its own requirements and regulations. However, a typical rental-purchase agreement will involve the renter/buyer having the option to purchase the property after a set period of time. This time period is, on average, 3 to 4 years. This will be achieved by an option payment, which is typically a one-time payment to the seller offering the buyer the option to purchase the condo at the end of the period. On average the option price is typically 3% of the total purchase price. Usually the option price will be 2.5% to 7%, which is substantially less than the 20% down payment of most mortgages.

How do Rental Payments Work for Rent-to-Own Condos?

The renter/buyer agrees to pay the full amount of rent during the lease, but a percentage of the rent will be applied towards the purchase price. This percentage, which is on average 25% of the rent, will become the rent credit.

When are Rent-to-Own Condos a Good Idea?

Rent-to-own condos are a great option for those who are recovering from bad credit or for those who aren’t ready to make the down payment on a mortgage. Rental-purchase agreements give the potential homeowners a chance to build up a good credit history and some additional time to save money.

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Renting vs. Buying Condominiums: What to Consider

Renting vs. Buying a Condominium

There are many factors to consider when it comes to renting or buying a condo. Finances are a major aspect to factor in, but thats only one piece of the puzzle. Consider these pros and cons if you’re struggling with the decision to rent or buy.

1. Calculate the Price-to-Rent Ratio

If you want to know the price-to-rent ratio, find a condo in your area for sale and a condo for rent. Be sure that they have similar features, such as the same number of bedrooms and comparable square footage.

As an example, lets say you find a condo selling for $200,000, and down the block you find a similar condo renting for $1,000 per month (or $12,000 per year.) Dividing $200,000 by $12,000 will give you a price-to-rent ratio of 16.7. If the ratio is higher than 20, the monthly costs of condo ownership will exceed the cost of renting a similar condo.

2. Determine Your Household Budget

An important financial aspect to consider when deciding to rent or buy your next condo is your income. If the purchase prices of the condos in your area are exceeding what you make in three years, then consider renting. If you’re intent on buying, then consider looking at other neighborhoods or locations.

3. Identify Your Needs

If you purchase a condo, being able to change the layout is an available option. But if you rent, you’re basically stuck with what you get. Owning a condo gives you the freedom to make more invasive changes to the interior. You can remodel more easily and expand where you need to. Most tenants who are renting or leasing, won’t be able to make any significant changes.

4. How Long Do You Plan to Stay?

Another major aspect to contemplate is how long you plan on staying in the area. Renting a condo gives you a lot more flexibility to relocate if needed. Some things to consider are if you’re planning on starting with a new job or starting a family. Buying a condo, you may be stuck with the purchase until the 30-year load is paid off or you can find a buyer.

5. The Responsibility of Maintenance

One major upside to renting is that if anything goes wrong, like the electricity malfunctioning or toilet backing up, you can call the condo association to come fix the problem. As a condo owner, you’ll be responsible for any mishaps.