If you’re anyone who’s ever chosen to rent instead of purchase their first home, you’ve probably heard the old adage: “Renting is throwing your money away.” Right up there with, “Money is the root on which every flower blooms (whatever that means),” it’s an antiquated creed that has little weight in today’s real estate market. Especially if you’re a millennial.
In fact, when it comes to real estate investors looking to rent out their properties, it’s a mantra that might as well go the way of the Dodo bird.
Fortunately for folks under 30, we live in a “market-disruptor age”; a time when it’s becoming increasingly profitable for investors to lend a hand to their younger (and more cash-strapped) counterparts in purchasing their first home.
Welcome to the world of Rent-to-Own.
While the concept is certainly not prolific, it has become quite popular, especially in modern metropolises across North America, where the cost of housing has risen to exponential heights in recent years.
According to The Street, the concept is a veritable no-brainer: both tenant and landlord enter into a joint agreement whereby a percentage of each month’s rent is allocated toward paying off a portion of the home’s mortgage until the end of the rental agreement. At that time, the tenant either agrees to pay of the remaining % of the mortgage’s minimum down payment for the purposes of co-purchase, or moves on to rent elsewhere, leaving the landlord that much closer to paying off the mortgage.
Like Hot Yoga or The Keto Diet, Renting-to-Own may at first seem like some half-baked millennial construction packed with more ‘ouch’ up front than it’s worth in the end. In reality, however, it’s a real estate contingency plan that’ll pay off in spades. Other benefits for investors include:
- Providing a guaranteed co-investor for your pricey home purchase.
- Stabilizing (and then lowering) the annual rising cost of the housing market over time. The less demand there is for owning a home up-front, the less expensive the housing market will remain, as it will have to adjust as demand decreases.
- Increasing the chance of respectful tenants. No one’s going to want to trash the place and leave if they know they too are footing the bill for your shared four walls – walls that might just become theirs someday.
So the next time you’re thinking about investing in a property, pay it forward by entering into a Rent-to-Own agreement with a millennial… as who knows, you just might pay off that house sooner than you thought.