Hi Rodimus
A Rent To Own (RTO) is one of the three most popular vendor finance (VF) techniques. The other two are an Instalment Contract (often called a Wrap) and Deposit Finance. At the moment RTO's and Instalment Contracts are the most popular, as Deposit Finance is currently reasonably hard to get across the line with traditional lenders.
Are explanation of how they work and how an investors might put one together is available at:
http://www.propertyinvesting.com/strategies/lease-options
There is a huge variation as to how much is credited to the tenant/buyer's deposit. Some vendor financiers, will give you a credit of what you would pay off under a traditional home loan. Others will give you more. It's just a matter of asking what price credit the VF'er is offering. You will also hear price credit as rent credit and equity credit out there in the marketplace.
Just to be clear, the legal paperwork that's used to make up a RTO is a residential lease and a call option. One point to watch with RTO's that offer large price credits and/or short time frames is, what is your real chance of being in a position to actually buy the property in 2 to 3 years?
You need to do these numbers realistically because, when the Lease and the Option expire, you either have to be in a position to purchase or 'legally' you can lose the lot, i.e. once the Lease and the Option expire they are worthless and you are only entitled to these price credits if you actually buy the property.
One way to get around the challenge of a short term Lease/Option is to ask the vendor financier if they will roll you over into an Instalment Contract for a further 5 years, if needs be, at the end of the RTO. If they agree make sure it's in the legal paperwork.
Cheers, Paul
