Investing in rent-to-own housing can be a great way to build wealth and earn passive income. With a rent-to-own property, a tenant rents a home for a period of time with the option to purchase the home at the end of the rental period. This type of investment can be a win-win for both the investor and the tenant.
Benefits of Investing in Rent-to-Own Housing for Investors
For investors, rent-to-own properties offer a steady stream of rental income, as well as the potential for appreciation in the home’s value. Additionally, the tenant is responsible for maintaining the property and paying for any repairs or upgrades, which can save the investor time and money.
For Investors:
- Provides a steady stream of rental income
- Potential for appreciation in the home’s value
- Tenant is responsible for maintaining the property and paying for any repairs or upgrades
- Can save the investor time and money
Benefits of Investing in Rent-to-Own Housing for Tenants
For tenants, rent-to-own properties offer a chance to live in a home they may not be able to purchase right away. The tenant has the opportunity to save for a down payment and improve their credit score while living in the home. When the rental period ends, the tenant has the option to purchase the home, which can be a great way to achieve the dream of homeownership.
For Tenants:
- Offers a chance to live in a home they may not be able to purchase right away
- Opportunity to save for a down payment and improve credit score while living in the home
- Can be a great way to achieve the dream of homeownership
How Does Rent-to-Own Housing Work?
A client completes an application and let’s say are approved for a home at $250,000 based on their situation.
The investor purchases a three-bedroom, two-bathroom home for $250,000. The investor then rents the home out to a tenant for $2,000 per month which includes a rent-to-own option consideration. The rental agreement states that the tenant has the option to purchase the home for $300,000 within the next three years.
- The tenant moves into the home and begins paying $2,000 in rent each month. The tenant also pays for any repairs or upgrades to the property as outlined in the rental agreement. After three years, the tenant decides they want to exercise their option to purchase the home.
- The tenant has saved enough money for a down payment and has improved their credit score. The tenant then obtains a mortgage loan and purchases the home for $300,000 as outlined in the rental agreement.
- As the investor, you have been receiving a steady rental income for three years, and have now sold the property for a profit. The tenant has been able to live in the home, save for a down payment, and improve their credit score, which helped them to purchase the home they were renting.
It’s important to note that the scenario described above is just one example and the terms of the rental agreement can vary, such as the length of the rental period, the option fee, and purchase price. It’s essential to have a clear and legally binding agreement with the tenant that outlines the terms of the rent-to-own arrangement.
How Does a Joint Venture Partnership Between a Rent-to-Own Company & A Private Investor Work?
Example 1:
A joint venture partnership between a rent-to-own company and a private investor can be a great way to invest in rent-to-own properties. This type of partnership allows the private investor to invest in rent-to-own properties without having to manage the properties themselves, while the rent-to-own company handles the tenant screening, lease agreement, and property management.
In a joint venture partnership, the rent-to-own company finds a qualified tenant and handles all aspects of the tenant screening, lease agreement, and property management. The private investor provides the capital to purchase the rent-to-own property, typically a single-family home or a small multi-unit building and obtains the mortgage. The rent-to-own company then finds a qualified tenant and handles all aspects of the tenant screening, lease agreement, and property management. In return, the private investor receives a percentage of the rental income and shares in the appreciation of the property’s value when the tenant exercises the option to purchase. The rent-to-own company, in turn, receives a percentage of the rental income and an agreed upon management fee for their services. Both parties then split the profits when the tenant purchases the property.
This type of partnership allows the private investor to earn passive income and build wealth over time, while the rent-to-own company can increase their portfolio of properties and earn a management fee. It’s a win-win for both parties.
However, it’s important to understand that a joint venture partnership is a legally binding agreement, and it’s essential to have a clear understanding of the terms of the partnership. This includes the percentage of profits, management fee, and responsibilities of each party. It’s also important to do your due diligence and research the rent-to-own company to ensure they have a good reputation and track record of successful partnerships.
Example 2:
A private investor, John, is interested in investing in rent-to-own properties but doesn’t have the time or experience to manage the properties on his own. He partners with a reputable rent-to-own company, JAAG Rent to Home, which specializes in managing rent-to-own properties.
The partnership between John and JAAG Rent to Home works as follows:
- JAAG Rent to Home finds a qualified tenant and handles all aspects of the tenant screening, lease agreement, and property management.
- John provides the capital to purchase a rent-to-own property, which is typically a single-family home or a small multi-unit building and obtains the mortgage.
- JAAG Rent to Home finds a qualified tenant and handles all aspects of the tenant screening, lease agreement, and property management.
- John receives a percentage of the rental income and will share in the appreciation of the property’s value when the tenant exercises the option to purchase.
- JAAG Rent to Home receives a percentage of the rental income and an agreed upon management fee for their services.
- John and JAAG Rent to Home split the profits when the tenant purchases the property.
In this example, John gets to invest in rent-to-own properties without having to manage the properties himself. He can rely on the expertise and experience of JAAG Rent to Home to handle all aspects of the tenant screening, lease agreement, and property management. In return, the rent-to-own company gets to increase their portfolio of properties and earn a management fee. This partnership allows both parties to benefit from the investment.
This is just one example of how a joint venture partnership can work, and the terms of the partnership can vary. It’s crucial to have a clear and legally binding agreement that outlines the terms of the partnership, including the percentage of profits and management fee.
Should You Invest in Rent-to-Own Housing?
When investing in rent-to-own housing, it’s important to do your due diligence and find a property in a desirable location with good schools and amenities. You should also make sure that the rental price is in line with market rates and that the purchase price is fair. Additionally, you should have a clear and legally binding agreement with the tenant that outlines the terms of the rent-to-own arrangement.
Investing in rent-to-own housing can be a great way to build wealth and earn passive income. By providing tenants with a chance to achieve homeownership, you can help them achieve their dreams while also building your own financial future. Contact our team to start investing in rent-to-own housing today.
