Is "rent to own" a good option even when you have enough for a downpayment?

In my opinion it makes sense only if you are about 90% sure you are going to buy the place. If you really think prices are going to drop significatly enough for you to back away from this deal, then keep renting at $1200 and save a lot of money. I'm not sure but aren't rent to own rents much higher?

You need to look at a copy of the rent to own contract---the lock in time for the purchase price is much shorter than length of the lease.

don't forget about the expenses of moving, as well as the hassle.
you'll need to change all of your addresses, cable account, electricity, etc as well as possibly break leases.

Unless there is something amazingly special about this apartment, if they're doing rent to own there's chances the unit you want may be around for awhile. Or even more likely there's something 90% similar in the neighborhood.

I wouldn't suggest it. You're just delaying your decision until a later period with the rent to own program. You'll probably be locked into a price and only able to apply a portion of your down payment in the rent to own program. If you want to buy you should do what you can to buy now. If not, it sounds like you should just rent your apartment until you find something you're comfortable buying.

"rent to own" is never a good option, and it has nothing to do with whether you have enough for a downpayment. You should compare it to the cost of renting the same unit, not the cost of buying it.

Think it through -- what do you gain? Do you think the market is going to shoot skyward in the next year or two? Neither does the landlord -- that's why he's offering rent-to-own. And he's hoping to avoid paying 6% of the sale price to a broker ... what is giveback to you vs. what he'd charge just as a rental? I bet it's not worth it to you.

You should probably just continue renting where you are, and buy another place in a couple of years.

I don't know the specifics of the Brooklyn market, so take my numbers with a grain of salt, but this should give you an idea about what you are getting yourself into. Given that you can rent a new Manhattan 1BR condo for $2500 (what you can get if you put a little effort into it), I'll gander a guess that the rental value of the apartment in question is $1500. So, you're over-paying rent by about $1000 a month, or $12K for the year, for the option of buying at a pre-determined price. Standard option valuation methods are not appopriate here (illiquid markets, high transaction costs, no shorting, etc.), so all you can do is ask yourself whether it's worth $12K to lock in the option to buy at the pre-determined price. Also, note that if you've taken the rent-to-own option, prices go down, and you decide to buy anyways (at the "market" price rather than the pre-determined price), your negotiating leverage is much more compromised.

Personally, I wouldn't do it. Did you notice that rent-to-own was never offered by developers when the market was going up? Developers are not uninformed parties, and they are offering this now (and not a few years back) for a reason. Have you seen how things have ended up with rent-to-own programs that developers were offering a couple of years ago in markets ahed of NYC? Nothing is certain, and you should apply your own expectations on the future of the prices at this development (which you think will be down), but from what you say, you think it's headed down. Do you really want to pay $12K to reduce the risk if the market heads up, compromising your negotiating position if the market heads down?

Best of luck.

inonada, good analysis. But I can't believe anyone is entertaining this as a serious offer. There is NO upside to rent-to-own, EVER. I suppose by renting first, you can figure out why you don't like the apartment and won't buy it, but I wouldn't really call that an upside.

Rent-to-own is not offered in rising markets. It's a small-timey marketing gimmick that's used in falling markets only. Did you ever hear of rent-to-own in New York in 2006, for example?

Thanks for all the helpful advice.

Rent-to-own is not offered in rising markets. It's a small-timey marketing gimmick that's used in falling markets only. Did you ever hear of rent-to-own in New York in 2006, for example?

Exactly

I agree with alanhart that there is never an upside to rent-to-own for the renter. If you want to buy, and think the price is right, then buy outright and enjoy the potential discounts that may come with capital risk.

Otherwise stay out. Keep your downpayment cash for a good deal. Don't waste it on an inflated rent!

I was at an open house at 229 N 8th St in Bkln today and they informed me of the developers plan of a different kind of "rent to own" program. Seems like the building has its final C of O but does not have enough units under contract to allow many of the buyers to get financing. So they are offering buyers to pay them "rent" and live there until enough units go into contract so they can start closings. 100% of this so-called "rent" will go towards the down payment.

This seems like a great strategy to get the units to sell. One issue is that they will "force" closings once the building reaches 70% under contract, and there is no way to time that so who knows how much interest rates will be by then. What else should a buyer be wary of in this situation?

I would hesitate to agree to a forced closing on a rent-to-own, that is giving too much away to the other side. Usually these are unilateral contracts, not bilateral contracts; that is, only one side is forced to do something.

If you adore the place and otherwise love the deal, then get an escape clause written in if you can. Get your attorney to come up with something that is court-tested and see if the developer will go for it. I'm not sure what that might look like...an interest rate cap, maybe?... but there should be some cousin to a mortgage contingency clause that might work, that would let you bail out if you have to.

Imagine this. It takes 2 years before they have enough buyers. In 2 years your financial situation changes, and you can no longer afford any mortgage needed for this pad. Yet you still have to buy it?

If I'm missing something somebody set me straight...

{Manhattan real estate agent.}

I get everyone's opinion about a down market, but here's the issue ... if you like the apt and can see yourself living there, but don't know how long b/c there are some "issues" (noise, light, etc), isn't renting for a year a good option with a portion of your rent going towards the purchase price? IF the rental price is within $500 of what an apt similar to it would rent for, what's the harm?

usually you need to commit to purchasing 4-6months into the rental term if you want the rent credited towards your down payment