Lease options VS rent to own

11 Replies

Hi everyone.

I am currently looking a property and am wondering, from a buyers perspective, what is the difference between a lease with option to purchase and a rent to own?

thanks for your help :)

As @John Jackson  just mentioned, they are the same.

What you are actually doing is renting a property with the hopes of owning it some day by being able to get a mortgage yourself and buying the property. That's rent to own.

Another way if saying this is that you are leasing the property (renting) with an option to buy the property someday.

Another reason it is called lease option is because a lot of people use a "lease" contract and an "option" agreement.

Friendly tip: I wouldn't touch a rent to own deal with a 10ft stick. If you do a "rent to own" search on Google and click on any of the ads, you will see that almost every site is a scam. Some force you to sign up for a free credit score, others send you affiliate emails that never stop! Be sure to visit with a local Realtor before signing up on any of these bogus sites!

Gee, mentioned for blowing my top without even posting in this thread, that's a first. LOL

Aaron, second post in the forms by someone with 3 awards, another first! I had to check that out and see you're active on the blog side, where I rarely visit (but probably should). Pick up the pace man and jump into the forums!

I refuse to use the term mentioned above. I have been negligent in my area on this topic, we had this pretty well exposed around here and some new shysters are popping up, might be time to go back out on a slash and burn mission again.

Learn lease options, subject to transactions, if you must, as bad as they are, use a sandwich lease. :)  

Originally posted by @Joshua Berube:

Hi everyone.

I am currently looking a property and am wondering, from a buyers perspective, what is the difference between a lease with option to purchase and a rent to own?

thanks for your help :)


If you go searching the CRA website for the ITBs and interpretations around Purchase Options / Lease Options and Instalment Sales, you will find they're not fans of the term "Rent-to-Own" and it often serves as a flag for "instalment sale".

The CRA interpretations are similar to what Bill Gulley and others have written on BP with respect to safe/correct practices in the U.S.A., though perhaps not quite as strict.    You are best to have an option contract  which gives the buyer the right to purchase at an agreed upon strike price (or an agreed upon mechanism for setting the strike price at the time of exercise) and a separate lease agreement (using the standard form of lease in many Provinces) at market rent.   

Where you will start wandering into troubled waters is when there are performance incentives (i.e. refundable rent credits to be applied to the purchase price of the property) tying the lease and the the option together.    

Needless to say, if the CRA concludes your "rent-to-own" is really a contract for sale with instalment payments, it can have negative tax consequences on both the vendor and buyer.

Ok so here is my 2 cents worth...

I will only do lease options b/c I do not want to record the deed in my buyers name such as true owner financing requires. This keeps me from having to foreclose which is costly and takes forever, too much hassle. 

You can call it anything you want RTO, owner financing, land contract or lease option but in my opinion they are basically all the same just done or written a little differently.

I actually use a real estate purchase and sales contract with terms built into the description therefore using it as a lease option. This way I can just keep the property if the buyer doesn't fulfill the agreed upon terms/payments and I can just take this same contract to the title company when the terms are fulfilled and it can be transferred. 

Works great!

Hope this helps.

Well Jared, you haven't had any issues yet, but keep going and you will. Each of the contracts you mentioned convey different rights, they aren't the same.

A good option contract has all the elements of a purchase contract and it goes to closing once the buyer gives notice to exercise the option, that's good.

As to just evicting, KY and all other states recognize equity established under RTO, L/Os and other installment sales, when an equitable interest is reached you can forget eviction and you'll be going to a judicial foreclosure, worse than a non-judicial action because there is no formal foreclosure and security agreement made.

You can get more technical insight to all of these arrangements here on BP with some easy searching. :)

@Phil Strickland  

I did end up going with a lease option. my lawyer said that the option agreement was near solid enough, I missed a few things but nothing tragic. however, the lease is just a standard lease and does not take into account the option. there is nothing written to says who will take care of a structure issue. I didn't do enough diligence here and it wont happen again. I think the relator played to my naïveté and wasn't as.... honest(?) as he perhaps should have been. my fault. It wont happen again.

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