Is Rent-to-Own Better Than Buying?

a row of philadelphia houses with a for rent board outside

Rent-to-own properties are a relatively new way of buying your own home, without having to pay an upfront deposit or get a long-term loan. A rent-to-own home is a concept where you make a deal with your homeowner or landlord on the property you want to live in and (eventually) buy.

This deal states that you stay as a tenant and keep paying the rent until you completely buy it off. Each rental payment you make goes as a monthly or weekly installment towards buying the home. Once the property is all paid off, you get to own the property.

There are so many benefits to rent-to-own, especially if you’re currently renting and/or unable to secure a mortgage yourself. Keep reading to learn the benefits of rent-to-buy to learn whether rent-to-own is better than buying for you.

1. Your Credit Score Doesn’t Matter

When you go for the rent-to-own home option, your credit score is not counted. If you have a very poor credit score, you are most likely to get a rejection from the bank for a home loan. Traditional banks only give out loans to people with good credit scores, and they do a thorough background check. If you have unpaid bills and a low credit score, you are rejected by default.

This makes getting a home loan (and buying your dream home) a very challenging process for many people. But the top rent-to-own homes in Vancouver don’t check your credit score in the same way, as they let you buy the house in installments. This is one of the biggest benefits of rent-to-buy vs buying a property, especially if you have bad credit.

2. You Don’t Have to Pay Bank Interest

Even if you manage to get a home loan, you have to pay a high-interest rate based on your credit score. For example, if you have a very low credit score, the bank will charge you a much higher interest rate compared to someone who has a good credit score. For some home loans, this high-interest rate can stay with you for a long time (up to 30 years, depending on the term length you choose/are given at the time of purchase).

In 2023, the home loan interest rates sit between 7% and 6.3% for terms of 7 years to 30 years, according to the Bank of America. This is a high amount to pay on top of monthly payments. Because of this, choosing a rent-to-buy can sometimes be a better, more financially beneficial choice long-term than buying. It’s important to speak to a financial advisor before determining which option is more financially viable for you.

3. Rent Becomes an Investment

a row of philadelphia houses with an apartment available sign outside

When you are staying in a property as a tenant, you are paying the monthly rent regardless of whether you get to own the property at the end of it. When renting traditionally rather than via a rent-to-buy option, there is no return on investment from your rental payments (i.e. you don’t make any money from it).

However, when choosing a rent-to-buy property, you get to own the home at the end of the agreed term (provided you keep up with payments and don’t pull out during the agreed term). This means you are investing while renting, just like you would when buying a property, rather than spending money on rent each month with no return.

4. You Can Inspect the Home

The major advantage of renting to own a home is that you are already living in the house, and are therefore aware of what you’re getting yourself into. When living on a property, you can fully understand the long-term maintenance required and how much it costs. You also get to know what major issues are present within the property. So, you can make an informed decision about whether to continue the purchase or withdraw yourself from the contract.

Additionally, you can make changes to the property knowing you get to enjoy the return on investment. For example, if you want to renovate the property or invest in new kitchen appliances, you can make these changes knowing it’s you who will benefit from the added value (rather than your landlord). Such changes can also be made over a long period, saving you the upfront investment and allowing you to redesign your dream home over time.

5. You Don’t Pay Property Tax

a large house with a for rent sign outside

When you choose to rent-to-own a home, you are also exempted from the property tax. This is because you are not eligible to pay the property tax until you become the homeowner. This is a great opportunity to earn some savings and use it to make changes in your home or improve your credit score rating.

However, keep in mind that the homeowner/landlord may be charging you the costs of the property tax indirectly via the monthly payments. Check whether this is the case before determining if this benefit applies to you.

Summary: Is Rent to Own Better Than Buying?

In summary, choosing a rent-to-own property can be a great option for many people. It’s particularly beneficial for renters who are already paying rent and for people with poor credit scores or who are unable to secure a home loan for any other reason.

If you’re thinking about buying or selling a property in Philadelphia, or investing in a rent-to-own purchase yourself (to let to tenants), Brotherly Love Real Estate are your local property experts. Give us a call today at (215) 769-9875 or contact us online to learn more.