Renting with an Option to Buy

Q: "How does renting with an option to buy work and does it make sense in this market?"

A: Renting with an option to buy can often be a beneficial arrangement for both buyer and seller. As a buyer, for example, you may not have the resources today to make the purchase but you know that you will have the cash to move forward in six months. By making an offer with this option, you won’t lose out on the property that you have identified as perfect for you. For a seller, you may be in a position where you can wait to sell your property, and this way you can lock in a sale price and you will be collecting rent.

In a typical arrangement, the buyer/renter will pay a non-refundable deposit to the seller for the option. Depending upon the agreement, a portion of your rent may also be applied to the eventual purchase price. The buyer also gains an advantage in many cases by having a right of first refusal, in the event that another buyer comes along and makes an offer. 

Does this type of arrangement make sense in this market? Yes, in fact, sellers are more open to accepting this type of offer in a softer market. In a rising market, a seller will not likely opt to tie up the property with a rental when his/her goal is to sell the property. But in a softer market, it is an opportunity for the seller to benefit from income while the market adjusts. For a buyer in this market, it gives you a chance, before you make the purchase, to allow your portfolio to rebound following the recent financial crash, while allowing you to enjoy use of the property immediately.