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Is rent-to-own a solution to the rental crisis?

 

NEW YORK – Jan. 17, 2016 – Rents are skyrocketing across the U.S., and an increasing number of renters devote more than half their paychecks to covering rental costs. It's not just a family burden: Those escalating rent costs have been cited as a major hindrance preventing renters from saving enough for a home purchase downpayment.

But some housing analysts are pointing to rent-to-own agreements as a solution for families who are stuck paying rent but longing for homeownership.

A report from Moody's Investors Service singles out a program called Home Partners of America that helps potential buyers with credit problems or not enough money for a downpayment. 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, providing it meets the program's qualifications. It 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.

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 purchase price will rise – usually 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 properties under the program is $247,483 in comparison to rental 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)

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Related Topics: Trends