Rent-to-Own: Pros, Cons, and Customer Opinions

According to a new survey from The Motley Fool Ascent, rent-to-own may be back for good.
Seventy percent of Americans know how rent-to-own works, and 79 percent would think about using rent-to-own to buy a house. Most Millennials want to rent-to-own homes.
Read on for more information about rent-to-own trends and answers to questions like how rent-to-own agreements work, what the pros and cons of rent-to-own are, and who rent-to-own is right for.

What we learned

Interest in rent-to-own: 70% of Americans know how rent-to-own works, and 79% of those people would think about using it.

Pros of rent-to-own: The biggest benefit of rent-to-own for people who are interested in it is that they can start the process of buying a home without having good credit, a down payment, or qualifying for a mortgage.

Cons of rent-to-own: People who wouldn't use a rent-to-own agreement are most worried about being stuck with a home's value for a year or more before they can buy it.

How it works for rent-to-own
A rent-to-own agreement works like a lease, but it also gives the renter the right or obligation to buy the rented property after a certain amount of time.
There are two different kinds of rent-to-own contracts: a lease-option contract and a lease-purchase contract.
In a lease-option agreement, the owner of the property has the option to buy it back after a certain amount of time.
In a lease-purchase agreement, the person who is renting the property agrees to buy it at the end of a certain amount of time.
A contract for a rent-to-own home has a few other unique parts:
The price to buy is: A rent-to-own contract should have clauses about when and how the home's purchase price will be determined. In some cases, the price to buy will be set before the rental period ends, and in other cases, it will be set before the rental period ends. This locks in the price of the house while it is rented out.

How rent is added to the price of a rent-to-own home In some rent-to-own deals, a portion of each rent payment goes towards the home's purchase price. When this happens, rent might be higher than usual.

Maintenance: In rent-to-own homes, it is not uncommon for the lessor to be in charge of maintenance. Most of the time, landlords are responsible for maintenance under standard lease agreements.
A survey from The Motley Fool Ascent found that 70% of Americans have heard of rent-to-own agreements as a way to buy a home.

How much of this generation knows about rent-to-own agreements in the context of buying a home?
The baby boomers 63%  Gen X 69% Millennials 75% Gen Z 64% All respondents: 70%. The information came from a survey that Pollfish and The Motley Fool Ascent conducted on January 26, 2023.

Most people in Generation X (69%) and Generation X (75%), had heard of rent-to-own. Baby boomers were the least likely to know about rent-to-own when it came to buying a home (63%).

Rent-to-own isn't a brand-new idea. Rent-to-own homes became popular in the middle of the 20th century as a way for African Americans who had trouble finding mortgage lenders who would work with them to become homeowners. But these agreements have been looked at closely, and legal action has been taken because they put the families they were meant to help in bad contracts.

More than any other generation, 86% of millennials would consider renting rather than owning. Overall, 79% of respondents said they would consider renting rather than owning. Millennials were more likely than any other generation to consider a rent-to-own home. The baby boomers58%  Gen X 74% Millennials 86% Gen Z 77% All respondents 79%. The information came from a survey that Pollfish and The Motley Fool Ascent conducted on January 26, 2023.

The baby boomer generation is by far the least likely to rent-to-own. This could be because baby boomers are already the largest generation of homeowners. Also, older generations may be better able to make a down payment and have the credit needed to get a good mortgage loan. These are two problems that rent-to-own agreements are meant to help solve in the home-buying process. Zillow says that younger people who want to buy a home are more likely to be turned down for a mortgage.

The best thing about rent-to-own is that it lets you use renting to save up for a house. Most people who said they would consider a rent-to-own home liked that they could buy a home without having good credit, saving up for a down payment, or being able to get a mortgage.
What about the rent-to-own process makes you think about it?
The chance to live in a place before buying it 39%
The ability to lock in a price for a property at least a year before buying it 11%
The ability to buy a house without having good credit, saving up for a down payment, or being able to get a mortgage 50%. The information came from a survey that Pollfish and The Motley Fool Ascent conducted on January 26, 2023.

Rent-to-own homes are often advertised as a way to help people with low incomes or bad credit get through the steps of buying a home, which can be hard for them.
Rent-to-own contracts can be a way for families to build credit by paying rent on time, which could help them get a better mortgage when it's time to buy a home, for example.
Gen X (55%), millennials (50%), and Gen Z (50%) are more interested in renting because they can build credit, put some of their rent towards a down payment, and work towards getting a mortgage than baby boomers (39%).
The ability to lock in a purchase price a year or more before buying a property
The baby boomers42% 18% 39% Gen X 37% 9% 55% Millennials 40% 10% 50% Gen Z 39% 11% 50%
The information came from a survey that Pollfish and The Motley Fool Ascent conducted on January 26, 2023.
The biggest benefit of rent-to-own for baby boomers is the chance to live in a place before buying it, as long as there is an option to buy instead of a commitment to buy up front.
Baby boomers are also more likely than younger people to say that the best thing about rent-to-own is being able to lock in a price a year or more before buying the home.
Americans with a net worth of over $1 million are less likely to see the ability to start the home-buying process without good credit or saving for a down payment as the biggest benefit of rent-to-own. This is likely because those things are less of a problem for them.
Instead, they care more about being able to lock in a home's value a year or more before buying it and being able to live there before buying it.
The ability to lock in a purchase price a year or more before buying the property
Over $1 million 45% 15% 41% under $1 million 37% 9% 54%. The information came from a survey that Pollfish and The Motley Fool Ascent conducted on January 26, 2023.
Most people don't want to rent-to-own because they have to commit to a price and take care of maintenance.
Being locked into a price is a double-edged sword; it was the main reason people gave for not wanting to sign a rent-to-own agreement.
What makes you not think about the rent-to-own process?
being stuck with a home's price for a year or more while renting before buying it. 33%
Needing to pay for repairs and other costs on a rental home: 30%
The extra fee for the rent-to-own option is 24%.
The information came from a survey that Pollfish and The Motley Fool Ascent conducted on January 26, 2023.

People who were unsure about rent-to-own homes were most put off by the fact that they might have to pay for repairs.