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Could 'rent-to-own' be a solution to the rental crisis?

By Mike Wheatley | January 18, 2016
  • Skyrocketing rents all over the country mean that some renters are paying out more than half their paychecks to cover the rent. The so-called “rental crisis” is being blamed as a major factor prevent people from saving up a deposit in order to buy a home.

    Rent To Own

    As such, new solutions are needed, and now analysts are suggesting that the old rent-to-own agreement could be used to help those paying rents who'd like to become homeowners.

    A recent report from Moody's Investors Service identifies a program called Home Partners of America as one such solution. It's aimed at potential buyers who're unable to buy a home due to the lack of a down payment or bad credit. The way the program works is, buyers choose which home they'd like to buy, then Home Partners of America purchases the property before creating a rent-to-own agreement with the buyer. Eventually, Home Partners of America will sell the property to the 'renter' lock, stock and barrel.

    Home Partners of America says that it looks at properties which are “higher quality and in more desirable locations [such as those with better school districts]” than those that are typically bought via foreclosure auctions, Moody's report noted.

    The rent-to-own agreement enables tenants to buy the property outright during the lease term, which generally runs for between three and five years. However, the longer tenants wait to purchase their home, the more they will have to pay. The purchase generally increases from 3.5 percent to five percent each year throughout the length of the lease.

    Moodys says this and other, similar programs could have the added benefit of helping to recover property values in areas where they are active, because renters who have the option to purchase generally have an incentive to maintain the homes too.

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