Rent To Own Homes: How to Profit from a Lease Purchase

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What is your market like?

In some parts of the country – homes are selling like hotcakes and multiple offers that are above the asking price are common. However, for most of the nation, this is simply not the case. Selling a home can be difficult and time consuming, costing the seller incredible amounts of time and stress. This article is going to look at a creative way to sell a house for as much as you want without any added costs or stress: the rent to own home ownership strategy.

Why Would Tenants Rent to Own a Home?

Sally and John are a hardworking, newly married couple just starting their lives together. Sally just started work as an independent makeup sales consultant and John as a foreman at a local home construction company. The couple understands the enormous benefit to buying in today’s rock-bottom market (low prices, low fixed interest rates) and want to buy as soon as possible. However, despite having decent credit, they do not have the down payment required to buy a house. Additionally, Sally’s self-employment income can’t yet be counted toward the minimum required income. How can you, as an investor, create a win-win to help the young couple get into a dream home and make your investing easier and more profitable?

You guessed it: A rent-to-own home ownership strategy.

Rent to Own Homes: Definition

A rent-to-own strategy, also known as a “lease option” or “lease purchase” involves leasing out a home to tenants with a legal agreement allowing the tenants the exclusive right to buy the home within a certain time period. In other words, Sally and John can move into the home, pay monthly rent, and buy the home at some point in the near future.

This process allows the tenants time to save up the required down payment, build their credit, establish longer job history, or repair whatever is making it difficult to obtain a mortgage. In the story of Sally and John above, the young couple could use a lease option to move into their dream house (the house you are trying to sell) and give them time to save enough down payment to buy the home with a typical down payment.

How do Rent to Own Homes Work?

The process for finding great tenants is similar to any other rental property, including the important of advertising correctly and screening properly. For more information on finding, screening, and renting to quality tenants, see How to Rent Your House: The Definitive Step by Step Guide

After an acceptable tenant is found, the seller will sign the lease with the tenant, as well as the “option agreement.” Some landlords choose to use just one document for this (a lease purchase contract) while others use two separate documents (a normal lease plus a separate “option agreement.) Check with an attorney to see which is the best route for you to take.

Whether you use one document or two, the rent-to-own agreement essential states that you, the seller, cannot sell the property to anyone else within a specified time frame. This time frame can be whatever you agree upon, but typically term lengths are one to three years. The eventual purchase price is agreed upon at this point as well, allowing the tenant to “lock in” their purchase price and setting the sales price for the seller. The agreement also states the specific rules that the tenant will need to adhere to, as well as the responsibilities of both parties. Typically in a rent-to-own situation, the landlord will make repairs up to a certain dollar amount the responsibility of the tenant, but again, this is up to you to decide on.

For a great article on what to include in your rent to own agreement, see “The 10 Documents You Need for Your Lease Option Deals.

The Rent to Own Option Fee

Screenshot 1:5:13 6:51 PM When a tenant signs the lease and option agreements, they will also be required to pay the rent, the security deposit, AND the “Option Fee.” The Option Fee is an upfront down payment found in most rent-to-own home ownership programs. By paying this fee, the tenant is essentially paying for the right of exclusivity on the home, so only they can buy the home and the seller cannot sell to anyone else. This is what separates a rent to own home from a typical rental home. The amount you charge can be whatever you can reasonably get, but typically is between $2,000 and $5,000, depending on the value of the home. This fee is nonrefundable but will be later applied toward the tenants down payment when they are ready to get their mortgage.

Additionally, a rent to own home ownership program typically will set aside costs per month from the rent to be applied toward the future down payment as well. For example, if tenants Sally and John pay $1000 per month, the seller (you) might want to agree to apply $100 or $200 per month toward that future down payment. If the tenants never end up buying the property – then that extra money each month is forfeited to the seller, along with the option fee discussed in the previous paragraph. It may be wise to add wording in the rental agreement that specifies that this monthly payment is only applicable for on-time payments, giving incentive for the tenant to pay on time.

Seller Benefits to a Rent to Own Home Ownership Program

  • Tenants Do The Repairs

    As stated earlier, with rent to own homes you have the ability to require minor maintenance repairs to be the responsibility of the tenant. After all, they plan on owning this home someday, so this added responsibility will prepare them for that day. However, keep in mind that by shifting responsibility over to the tenant – many repairs may not be fixed or fixed properly.

  • Rent to Own Tenants Treat Houses Better

    While not always 100% true, tenants who live in a home under the assumption they will soon own the home will treat the home with more care than they would a typical rental. This might include higher craftsmanship in repairs, better cleaning, and more responsible choices (removing shoes on carpet, no drinks in the living room, etc.)

  • Incentive for Responsible Payments

    Because the tenant paid a fairly hefty “option fee” to move in and has been accumulating equity each month when part of their rent is being saved for help with their future down payment, the tenant has extra incentive for paying rent on time and eventually buying the home. This typically will translate to more responsibility in performing properly.

  • No Agent Commission Upon Sale

    Normally when you sell a house, it can cost 6% or more for the real estate agent fees. When you find the buyer yourself, through a rent to own home ownership strategy, you are able to keep that 6%. This is true unless you find your tenant through a real estate agent, in which case you may need to pay.

  • Less Turnover and Turnover Costs

    A Rent to Own tenant has a different mindset than a typical tenant: they want to be buyers. This means they are far less likely to quickly move away – giving you less vacancy costs. Additionally, if the tenant does move away, you have a security deposit as well as the “option fee” they paid at the beginning – so you are still in the positive.

  • Possible Higher Sales Price

    When you sell to a rent to own buyer, they typically are less concerned with achieving the rock bottom prices that many buyers seek today. For those looking for a rent to own house, the price is far less important than the terms you can offer.

  • Rent-to-Own: The Ultimate Win Win

    Rent to OwnThe rent-to-own strategy’s strongest benefit is in the ability to structure the ultimate win-win for the seller. The seller is able to lock in a sales price, without real estate fees, at the highest reasonable price. If the tenant ends up buying the home: the seller wins, with the sale. If the tenant does not buy the home and moves out – the seller wins also because they get to keep that option fee and re-do the rent-to-own program with another tenant. If the house is trashed – again, the tenants option fee should cover any damages. All in all – there are far less risks for a seller using a rent-to-own strategy to sell a house.

    What do you think? Have you used a rent-to-own strategy? How did it work out?
    Or have you thought about it but never tried? What’s been holding you back? Leave me a comment below and lets chat.

    Photo: Krystian Olszanski and Christoffer

    About Author

    Brandon Turner

    Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on,,, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.


    1. I’ve used the rent to own option for years. Its the only model that has consistently worked for me. Tried flipping, but holding costs were always killing me. Also tried buying duplexes and mulit-units but the tenants always seemed to trash the properties.

      Interestingly, I’ve never had anyone follow through and actually buy the houses, but the tenants always seemed satisfied. And the quality of the tenants is definitely higher

    2. Hi Brandon:

      As with all things real estate, find a local real estate attorney to guide you in this process. Here in North Carolina, eviction is handled differently for rent-to-own. They cannot be handled in Magistrate Court, like a normal eviction, but are kicked up to District Court and are more like a foreclosure (though not a foreclosure), because North Carolina sees the rent-to-own “tenant” as having an equitable interest in the property.

      Also, in order for a lender to accept their monthly credits toward purchase, the monthly amount that you are crediting to their purchase for on-time payments must be above the “average” rental price for that market. In one of our early rent-to-owns, we were charging normal rent but giving monthly credit because, as you pointed out could happen, they were paying full retail at purchase. The bank looked into local rental pricing and would not accept that the buyer had any accumulated credits, as they were not paying higher than “normal” rent. I’m not sure how banks have the time to be this picky… but just something to be aware of with rent-to-own.

      Thanks for your post.

      • Point 1, every state is different. Especially TX, and LA. See John Jackson for Texas Lease Options. LA has french cajun law. Close in an attorney’s office.

        Point 2. Get a Market Rent Survey from a licensed RE Agent in WRITING and charge market rent plus an additional option payment to be subtracted from the agreed up purchase price. In an uncertain market, you can tie the strike price to a new appraisal, and specify the appraisal company.

        Nice points, Karen!

    3. Melodee Lucido on

      Thanks for this article Brandon. I love l/o’s. I find it easier to bring true value to all parties with this method. In the course of marketing tho I always find a wholesale deal in the mix which makes it fun and interesting.

      I look forward to reading more of your articles :>

    4. Great concept on the surface, but I have never had a tenant follow through.
      This is not to say the experience was not still profitable, as the tenant kept the place nice, paid on time each month making the 4 year stay a delight for me. In the end the tenant had built up a sizable down payment credit as the market rent had been increased $100 with a $200 credit towards the down payment if she exercised her option to buy. The option included a renewal fee of $900 each year.

      In the end she was laid off, but found a new job a few States away and needed to rent elsewhere. The fee to purchase the option was the equivalent of 3 months rent, leaving her with no funds to move to the new location. Because I had made an omission on the original option paperwork (it was transferable) I offered to buy the option back as a means to transfer money to her to move into the next house. I thought this a win win as one of her not so nice friends wanted her to transfer the option to him for free.

      I was able to convince the this young lady that her friend was probably going to use the option to extort money from me or as a means to occupy the property. This fellow had just enough money to buy a pack of smokes. Either way if he moved in she would not get a dime, and I would move to evict her and all others.

      She did the smart thing, as will I in making future options non transferable, or transferable upon my approval that will include a fee.

      I am thinking the best way to sell a property to a tenant is via a land contract, tenants would pay a fixed monthly payment for a fixed number of payments for the deed. Just like they buy a car.

      • CFDs, AFDs, and LCs are all nice vehicles if the state statutes are good to repossess. Some state statutes need to foreclose, some are simple evictions if there are low equity positions. See your local REIA for an attorney recommendation.

        There is a hybrid of a CFD and a LO I use called a Contract for Option to Purchase (CFO) and a lease.

        – They lease and pay consideration for the CFO contract.
        – They finish the lease then they get the option,
        – no equitable interest until they finish the lease and receive the option
        – option can be placed in escrow
        – you can evict easily.

    5. Another informative article Brandon. As I move into more single family homes this is an option that will be more usable for me. The only question I have is you mentioned that in a worst case scenerio and the tenant/buyer trashes the place then the option funds can offset this. Just for clarification, the seller/landlord can still file suit for damages just as in a normal lease. I would guess there might be a difference between lease option and a rent-to-own, as the equitable title could be construed stronger in a rent to own setup compared to lease option

      Thanks again.


      • Take a note for option money. Get a total of 3% minimum. Take a note for some down, some every pay period. Get security if you can.

        Condition the tenant buyer that getting the mortgage is your #1 concern, working on their credit, getting their Debt to Earnings ratio down, etc.

        There is a great FICO coaching service. Envision Financial Solutions in TX, 817 605 9545. If they do not get the mortgage, you lose face as a REI in R2Own,

        IMHO You will never get damage if they have skin in the game and tight paperwork, which includes signing in an attorney’s office.

    6. Rent to Own is the blue collar speak, Lease Option is white collar terminology.
      The nuts and bolts of the agreement are exactly the same, kind of like potato, patato, tomato, tamato. 🙂

      • Thanks Dennis, I did more research on the topic and on correcting the terminology. I should have said lease/option compared to lease/purchase. As another poster stated and the subtle differences between purchase and option. In the end, I guess it depends on state law and court precedent.

      • My preference for white collar expensive houses is Lease to Own. Rent to own sounds like a blue collar Rent A Center.

        I’ve been doing LOs since 1986, and try to stay with upper 25% home values, and I work with no equity houses bought in 2006 – 2008. People are scared to rent expensive houses. And they do not want to feed the difference between rent and PITI payment.

        They can rent, sell with an agent, or do a Lease to Own, and get their PITI payment paid, which is usually more than market rent.

        An $800K house in Los Angeles or San Francisco has a market rent of $3k, and PITI over $6K.

        You can structure it so $3K is rent, and an additional $3K in tax deferred option money (totaling $6K).

        The trick is to let the Tenant Buyer know that “if they pay as agreed, the terms will be extended if they need more time to get the home mortgage.” Then they do not mind paying $6K a month, with $3K a month paid to the option contract.

    7. I concur with most of your comments. I am a private lender in the Pacific NW and I can say from personal experience, my borrower’s love this strategy. Borrowers get a loan from my company, obtain a nice rent payment which covers my interest payment, get a large lease option consideration, and have a ‘homeowner’ as a renter.

      In case one of my private lending consulting clients must take a property back, I also teach this strategy. I like the private lending side because I make money like a bank. My borrower puts his time and effort into finding the good deal which I take as collateral, he puts his own capital and money into my collateral in the form of improvements, he takes most of the risk, and he pays me a nice interest payment to do it. I have to take the lease optioned property back, I can sell the property lower than he could because my original basis(the loan amount) is lower than his original basis (capital improvements, time, effort, and loan amount) which he has in the deal. Banks have been making money like this for years…now I teach others to do the same.

      Lee Carney

      • Lori Agajanian

        Hi Lee, I want to lease- option my house and I am looking for a lawyer to write up the papers; do you know anyone ? I live in Las Vegas .
        How do you write up your lease option contracts? I was told I could get a lawyer to help me.
        Thank you,
        Lori Agajanian

    8. Great article as always Brandon!

      I am a fan of lease/opts, but as Karen R. mentioned you have to be careful not to get into a situation where you need to foreclose versus evict (I’ve been in this situation).

      In addition to Brandon’s remark of only applying rent credits to on-time rent payments, I also only offer rent credits for the first year, even if it’s a three year agreement. This gives a TB more of an incentive to stay on top of the purchase and less incentive to drag his or her feet. Furthermore, I don’t use the wording “rent credit” in my agreement. I call it an “additional option deposit.” That way, it cannot get confused or misconstrued as being some sort of principle payment / amortization or credit towards some type of note or land contract that doesn’t exist.

      Judges at the Magistrate level will have their eyes glaze over when a TB comes in saying that they have put a deposit down on a house, have built up substantial equity in the property due to rent credits, and have put $X amount of dollars into renovations. I’m not saying that I’ve mastered all these claims, but I know that how I structure my deals now is much better than when I first started with lease/options.

      And by the way, I would always use a lease/option versus a lease/purchase. Many people say there is no difference between the two, but I disagree. A lease/purchase differs from a lease/option because in the former the TB is stating that they are going to buy. It is like saying, “I want to buy this house but due to the immediate circumstances I can’t. I’ll need to rent it until I can.” In other words, the renting is just a means to an end. A lease/option is less certain, stating, “I would like the option to buy this house if I decide in the future I want to.” There is, at least in my opinion, a big difference. One has already decided, and the other wants the option to decide at some future point in time. Given this, I’d prefer to have to evict on a lease/option versus a lease/purchase.

    9. Just complete a sub-2 transaction, And found a tenant buyer for 5k dn option fee, and 800 month rent for 24 month lease option, toke over the mortegage at 71k, sold house on L/O for 85k, its was in move in condition and in a very nice location, Have another house for sale at this time, looking for a buyer , and I have another seller I’m meeting with later this week to see if her property is qualified for my program, we only do pretty house,s in nice area’s of town to so to get the best tenant buyer to complete the program, we create a win-win-win for everyone involued, want to do more of these, been doing a lot of whole saling ugly house’s, will still do them, but this rent-own is even better, JH

    10. Good post Brandon
      I currently have some lease options on single family homes & they are great just like everything you described. Has anyone experienced a situation where you agreed to a lease option price with your tenant/buyer in one year & years later when it came to exercise their option they could not get the financing for the agreed price because the market had continued to decline. For example the agreed price is $210,000 but now that same house comps out at $180,000 & they only have a $5,000 option down payment. If anyone has had this happen or anticipates this I would like to get your comments.

      • I’ve heard of this Mike and as far as I know the only real way to get the thing to close is to go back to the seller and renegotiate the sales price. This is the thing with lease/opts: If the market goes up and the value of the house increases, you get to buy the house below market value. If the value of the house drops, you can walk.

        Given your numbers, I don’t know anyone who would even want to close on a house that was $30K over market value. Why would you pay $210K when you could go down the street and get one for $180K? It would be most reasonable to walk from the $5K deposit and save yourself $25K.

    11. Like I said above I love these but never had one work out. The reason we have now is the onerous paperwork required by lenders today. On a recent refinance with 50% equity still in the property and me with a 835 credit score I just about had to give a DNA sample, and the loan is still in the hands of the UW.

      I really don’t know why I even bothered as I could have scored a private loan in a second with no inspection or paperwork on my part. But I might as well solder on to the end.

      I am not sure exactly how a tenant buyer is going to get a loan without good credit and solid employment. The only possible way is via a long term private loan, something most private money lenders do not want to offer.

      • Brandon Turner

        I think it comes down to education and accountability. A lot of people simply don’t know how to improve their credit (you mean I can’t open up a new credit card at every department store!?) and those that do usually don’t have the accountability in place to deal with it.

        While I’ve never done this – I think a good strategy would be to get people connected with a local mortgage broker who would meet monthly with them to review their finances and credit situation until they could get the loan. It’s a bit of work for the mortgage guy – but an hour a month for 6 months or so might be a great investment for a future loan and a good lead.

    12. I’m interested in starting in lease purchasing. I’d like to have that be a core part of my business. However, I plan to move out of the state within the next year. How can I best be successful managing rent to owns after I leave the state and I’m still in the sandwich?

      Thanks for your help everyone!!

      • Hi Lee,

        Rent to owns can be managed by a property manager if you are out of town (in a sandwich).

        But I would say to get them into a Credit Improvement Program to motivate them to follow through in getting the mortgage and actually buying. See

    13. I am curious how people are acquiring the properties that they lease option/purchase. Lee Carney mentioned providing loans to investors who lease option, and John Hoening did a subject-to. Is anyone else doing something different?

    14. lauren gilbert on

      I am a 25 yr old single mother. we have tons of rent-to-own homes in my area of Indpls IN. I am looking for ways to invest and add to my streams of income. Would I be allowed to do this without actually living in the home & renting it out to tenants of my own? I am not interested in a home for myself. I am only interested in creating additional income for myself. Please respond with clarity!!!

    15. Brandon,
      Wow, thank you for this very informative article. Just starting out with lease options here in FL after relocating from TX where I was primarily doing Owner Financed / Wrap mortgage deals. But FL laws are better for L/O’s instead. I picked up a few properties in the pass month and talk to a lot of tenant buyers however I was not agreeing to do rent credit or apply option fee towards their down payment when they exercise the option to buy.

      After reading your article and all of the comments I now understand that I should have been offering these things. now I am hopeful I will find tenant buyers & close on the properties I have fort sale.

      Should I call or email the tenant buyers I spoke to that called from the area bandit signs back and let them know that rent credits and option fee will go towards their down-payment when they buy?


    16. Great article! I am looking to structure my first rent to own deal, but it is a bit more complicated as I would like to convert one of my buy and hold duplexes into a rent to own as I am looking for a profitable exit strategy for this one in particular. Does anyone have any advice on structuring a rent to own deal for a duplex in terms of who will be responsible for managing the tenants and repairs in the other rental unit, and the water and gas is in my name as it is not split between the two units, so should this stay in my name? Any tips or links to articles for something like this would be great.

      • Bryce, just treat the duplex as if you had two tenants in there. The only difference is one tenant has a lease with an option to buy. Stay in control of the other tenant and keep the utilities in your name and pass the expense on to the tenants. If the tenant ends up buying, then they would take over the management and utilities. You’re giving up too much control if you structure it otherwise.

    17. Well I did a lease to own and I am the buyer. I have put many upgrades inside and the exterior of the home. I paid 7800 down, and none of my rent is going towards the housepayment. We increased the value and curb appeal so much, that the owner is cancelling the contract and only paying us the 3000 break fee. Yep not even our 7800. Plus to boot, he brought in an investor to buy the house at top dollar.
      I still had 9mo. To go on the lease. Fixed my credit. And now he is wanting to reap the rewards of our labor and sell at 300,00+. He states since he cancelled contract if we want to buy it we have to submit an offer.
      is this legal in Oregon? Sounds like he is keeping our 7800 until we move out for his own insurance.
      plus he knows we did repairs. Fixed his crappy electrical wiring and much more.
      I would think we have recourse. Sent the paperwork to my attorney
      just wondered if anyone else had these issues and how they panned out.

        • Oregon laws are terrible addressing this issue. The contract didnt hold water. The owner sold the house and made 45k profit.
          Try Home Partners for lease to own. They are legitimate and no private laundering games! Option 5 year to buy in the lease and they won’t sell the home out from under you.
          I would never do a lease to own with a private individual again.

    18. Arnoldas Serksnys

      Brandon, quick question – has there been many cases when a bank tries to foreclose the property if the owner still has a mortgage to pay and tries to Lease option his property to someone? Or even if the lender tries to sub-lease the same property? Or does this only apply to lease/purchase case? Thank you.

    19. Roschelle McCoy

      Is a lease-option possible if I’m the buyer of a property but don’t plan to live in it? Looking at purchasing a duplex that is fully rented with two tenants and trying to find a creative way to purchase this without the substantial down payment required on a traditional loan. Has anyone ever approached a seller with a proposal like this?

    20. Oregon laws are terrible addressing this issue. The contact didnt hold water. The owner sold the house and made 45k profit.
      Try Home Partners for lease to own. They are legitimate and no private laundering games! Option 5 year to buy in the lease and they won’t sell the home out from under you.
      I would never do a lease to own with a private individual again.

    21. Vaughn Franklin

      Thank you so much for this article, and all of the time you put into sharing your knowledge with us. I’m learning a ton and feel much more confident about real estate being a part of our future.

      My question for you is this. Is it a bad idea to be on the other side, to be the ones renting to own? My wife will become active duty in the Air Force in 2020 and we’ll be moving to the Chesapeake, VA area (hopefully) and after hearing your podcast and learning about house hacking, we’ve been trying to learn more about whether we should rent or buy. I initially thought owning a home would just a huge hassle, but I’m really interested in the benefits of house hacking and investing now after learning from you guys. We won’t be eligible for the VA loan until she has been active duty for 90 days, and ideally we would like to move one time and not have to move again. Would it be a loss on our part if we were to find a potential house hack home with a rent-to-own option… we rent it out until she accumulates her 90 days and then buy the home with the VA loan?

      We’re also thinking of a house hack such as one with a guest house, a separate in law suite, or a finished basement we could rent out… I’d be happy if renting out our basement or guest house could cover the cost of our mortgage. If we could get the mortgage covered, we could save the $2K housing allowing we receive from the USAF… basically $24K/year we live there saved. We will live there for 3 years so by having a tenant renting our basement/guest house/in law suite at the same cost as our mortgage, we’d save about $75K over the course of those 3 years… and BAH is tax free! Is this style of house hack something you would look into? The only homes we can find that include the finished basement/in law suite seem to be between $250K-400K… is that way too much?

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